AAPS News – Sept 2004

Volume 60, No. 9 September 2004

PAY FOR PERFORMANCE

In every sector of a free economy, payment for performance
is normal and expected. Competitive pressures serve to increase
quality. Expectations and responsibilities are formalized by
contract. Superior products and services command a higher price.
The ultimate judge of value is the customer, who can choose from
a wide variety of products and vendors.

If “P4P” sounds like a revolutionary concept in medicine, it
is only because it has been suppressed by price controls.
Socialist leveling has been pervasive and deliberate. The allowed
fee is set by the CPT code, whether the service is performed by
poorly trained resident or the world’s premier neurosurgeon.

The New version of pay for performance, however, will bear
no resemblance to the free-market concept, but will only tighten
centralized command and control. The originators include the
usual suspects such as the Robert Wood Johnson Foundation and
other advocates of the Prussianization of American medicine.
Related jargon is found throughout the documents of the Clinton
Task Force on Health Care Reform, for example, from the Jackson
Hole Implementation Team:

“We propose…tabulations of selected provider activity
records to document performance of desirable services such as
mammograms and immunizations” (Box #3305).

To “put IHP [Integrated Healthcare Association] on the map,”
this brain trust of California managed-care organizations has a
P4P plan that counts mammograms and the number of vaccines given
to children under two for DPT, polio, hepatitis B, H.
influenza b, chicken pox, and measles-mumps-rubella. Doctors
who have a high score on these and other measures collect a bonus
averaging $10,500 per quarter. About one in seven receive nothing
(PhysicianExecutive May/June 2004).

Standards and values are not to be consumer-driven. Instead,
national boards would “assure uniform definitions and performance
measurement standards…. Appropriateness of services should be
based on widely held beliefs about the value of a service to
society (e.g., public health impact, social costs, community
compassion), the value of a service to the individual at risk of
needing that service (e.g., personal ability to function, length
of life, equity), and the extent to which a service is considered
an essential component of a basic level of health care below
which no person should fall” (Box 1479, policy document from the
21st Century American Health System, the Public-Private
Partnership, and the National Health Board).

Individual priorities are irrelevant: rather, “public values
can be periodically assessed through surveys, focus groups,
public hearings, and other community meeting formats (ibid.).”

P4P only represents the incentive side of what is likely to
lead to federal regulation of the practice of medicine.
Initially, private entities (health plans) are to “assume more
responsibility for quality and for sanctioning substandard
provider performance” (Trial Lawyers’ Briefing Book for the
Clintons).

Outright coercion is the next logical step, alluded to
somewhat obliquely by W.K. Kellogg Foundation President William
Richardson in a 2001 Institute of Medicine (IOM) briefing on
“Crossing the Quality Chasm.” He said that “people working in the
health care system” [the word “physician” occurs but once in the
lengthy statement] “may be required to do their work differently
and in new types of organizations that may use a different mix of
health professionals.” Richardson suggests a “multidisciplinary
summit” to “prepare the work force” and to develop credentialing
programs. Reporting physicians to licensing boards for not
following certain quality standards has also been proposed
(AM News, Dec. 23/30, 2002).

This IOM Quality Initiative was a follow-on to the 2000
To Err Is Human report (AAPS News April 2000). Reinforcing the message of a
need for a radical structural change is a 2004 RAND study
asserting that Americans have only a 50/50 chance of receiving
“proper health care” (USA Today 6/25/03). The proper
interventions included mammography, immunizations, use of beta
blockers and aspirin after a myocardial infarction, inhaled
corticosteroids for asthma, and anti-smoking exhortations (N
Engl J Med 2003;348:2635-2645).

According to an accompanying editorial, the “current system
of care” is responsible for dismal performance. Without a
“computerized infrastructure,” it is “ludicrous to expect
physicians to comply consistently with hundreds of practice
guidelines.” It is confidently asserted that “adequate system-
wide investment “will yield savings that exceed the cost of
achieving them” (N Engl J Med 2003;348:2681-2683).

Since 1989, the Agency for Health Care Policy and Research
(AHCPR) has spent hundreds of millions of dollars to measure
“what works” and to develop clinical guidelines. As of 1994, the
agency could not point to a single example of its work affecting
clinical practice. Oxford University epidemiologist Richard Peto
said that spending on outcomes research was “worse than just
destroying the money because it gives the illusion of
information” (Science 1994;263:1080-1082).

In 1996, the Agency stopped working on practice guidelines
and left that to professional organizations, which have developed
more than 1,000. It now concentrates on “how we can reduce
inappropriate variation” (AM News 2/24/03).

It is clear that “performance,” like “quality,” equals
compliance or conformity (AAPS News Nov 1998). The same key “proved”
interventions are being touted now as in 1998, although
acceptable blood pressures and LDL/cholesterol levels are being
reduced no need for medical innovation.

Equally obvious is that independently thinking physicians
are a threat to the New System. It is imperative that both
physicians and patients declare independence from managed systems
while some semblance of free enterprise survives.

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Performance Measures Can Be Harmful

At a presentation on new practice guidelines at a university
hospital, George Fisher, M.D., disagreed intensely with the
“right” answers in every single case. In four cases, it had taken
so long to reach a consensus that the answer had been overtaken
by developments and was obsolete. In two cases, the clinical
specifics, such as a pleural effusion in a supposed case of
pneumonia, seemed to invalidate the premises of the guideline.
And in the other two, there were patient characteristics that
called for a different approach.

The number of falls is one of the inputs on the Medicare
report card for nursing homes. Hospitals are now seeing patients
who are frozen in a sitting position. It is apparently too
dangerous to get patients up to walk, says Linda Gorman.

No Evidence For Evidence-Based Medicine (EBM)

It is assumed without any evidence that EBM would
accept that EBM will improve the quality of care, and that
physicians who use it provide better care than those who do not.
By declaring itself to be above criticism, EBM has gone directly
from the bright idea to the implementation stage, bypassing the
usual period of critique and evaluation.

“EBM involves a takeover of the clinical consultation by an
alliance of managers and their statistical technocrats…easily
regulated by politicians, bureaucrats and their statistical
technicians” (Charlton BG, Miles A. QJM 1998;91:371-
374).

“The lack of evidence may be used as a cost-cutting tool to
deny patients treatment for conditions where there is nothing
`proven’ effective, even though accepting an unproven treatment
may be what the patient decides is the most attractive option”
(Cohen AM, et al. IJMI 2004;73:35-43).

“Systems Approach” to Research

It is also assumed that the IOM regulatory approach to
“protecting” research subjects will not kill good medical
solutions in the cradle, and that more rules will cost nothing in
terms of lost cures. To keep medical research from falling into
the maw of litigation, it is proposed to dig a moat of federal
regulation. As Daniel Henninger observes, “Run of the mill
research will muddle through the sludge.” But the regime built by
the IOM’s “Responsible Research” panel could well deter or
frustrate the genius who is dreaming of the next L-dopa, lithium,
or open-heart surgery (Wall St J 10/11/02).

Laparoscopic surgery was developed by a French surgeon in
private practice, who initially lost his hospital privileges
because of it. In the U.S., it was at first disseminated outside
academic circles, writes Robert Hamilton, M.D.

The technique that revolutionized cataract surgery was
inspired by a dental procedure. Dr. Charles Kelman, who was
honored by President George H.W. Bush for being one of the most
important innovators of the century, endured years of scorn
before his technique became mainstream, writes AAPS Director
Robert Gervais, M.D., in a forthcoming issue of AzMed.
It was unthinkable to go back to an “extracapsular” technique
after the invention of the supposedly perfect “intracapsular”
method.

Physician researchers, however, are no more to be trusted
than clinicians. “If there is one overarching issue here,” writes
Henninger, “it is the steady, disintegrating status of the
physician in U.S. society.”

Nursing Home Quality Data 80% Inaccurate

In a July 13 letter to CMS, Senate Finance Committee
Chairman Charles Grassley (R-IA) charged that consumers had only
a one-in-five chance of getting reliable data from the Nursing
Home Compare program.

“Couple those odds with the disturbing reality that the very
integrity of the quality data contained in the nursing home
inspection results and complaint histories has been called into
question and the bedrock value of the Nursing Home Compare
crumbles,” Grassley said (BNA’s HCFR 7/21/04).

JCAHO 70% Inaccurate

According to a July 2004 report by the U.S. Government
Accountability Office (GAO), the Joint Commission on
Accreditation of Healthcare Organizations (JCAHO) failed to
identify 69% of deficiencies in Medicare requirements found by
state agencies. The agency is a “lap dog,” charged Sen. Grassley.

Under current federal law, any hospital accredited by JCAHO
is eligible to receive Medicare reimbursement. No other private
agency has this much authority.

Legislation proposed by Rep. Pete Stark (D-CA) would give
CMS the power to revoke JCAHO’s authority. This begs the question
of whether CMS is any better. What is the gold standard for
identifying false positives or false negatives?

The full GAO report may be downloaded from www.
gao.gov/cgi-bin/getrpt?GAO-04-850.

Doctor Becomes “Inactive Provider”

A physician in solo practice stopped providing “Medicare
covered services” to Medicare beneficiaries in January 2001 and
was notified by his Medicare intermediary in March 2002 that he
was being placed in the inactive file. He had been advised by his
attorney that this was safer than opting out and obviated the
paperwork. Many physicians may find themselves in a comparable
situation if they fail to apply for a new unique Medicare
identifier. What will CMS do if they provide a potentially
covered service to a Medicare-eligible patient without filing a
claim?

Please send a copy of any communications concerning
this point from attorneys, carriers, or Medicare to
AAPS.

AAPS Calendar

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

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

“A statistic has been planted, and makes its appearance
in tables, graphs, learned discourses, becoming part of the
world’s wisdom. In the beginning was the Lie, and the Lie was
made news and dwelt among us, graceless and false.”

Malcolm Muggeridge

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Watch Out for “Quality of Care” Cases

Since Redding Medical Center paid $54 million to resolve
quality concerns over allegedly unnecessary heart surgeries,
compliance officers are scrutinizing all complaints and lawsuits
for a potential quality issue. The government pursues quality
cases as fraudulent billing under the False Claims Act if “the
provider fails to follow the conditions of Medicare by not
promoting the patient’s quality of life,” stated attorney Lester
Perling of Broad and Cassel, Ft. Lauderdale, FL (Medicare
Compliance Alert 7/19/04). All invasive surgeries are
considered potentially unnecessary by the government.

Compliance Industry Worried about Blakely

The Supreme Court decision that could limit sentence
enhancements based on factors not proved to a jury (Blakely v
Washington, see AAPS News, Aug
2004) has caused “angst and hand-wringing in corporate
compliance circles,” according to attorney Rebecca Walker of
Walker Compliance, Santa Monica, CA (BNA’s HCFR
7/21/04). Demand for expensive programs may depend on the hope of
a downward departure from sentencing guidelines in the event of a
criminal conviction. According to Walker, it seems unlikely that
these would survive if enhancements are forbidden.

Some analysts say that “providers should continue efforts to
strengthen their compliance programs,” as these may influence the
government’s decision to pursue a case.

In any event, institutions, the industry’s biggest
customers, are rarely prosecuted criminally. “They are just too
important” (ibid.). Doctors, in contrast, are expendable.

Government attorneys are now including waivers in plea
agreements that bar defendants from using the Blakely
decision to challenge their sentence.

Beware of Provider Identity Theft

If someone uses a stolen Medicare provider number to bill
for fraudulent services without the doctor’s knowledge, the
doctor might be investigated also. One innocent young physician
was “ravished” and “devastated” when someone billed Medicare for
$2 million using his number. The FBI assumed that he was trying
to skim extra money to pay his student loans (Medicare
Compliance Alert 8/2/04).

“Three Strikes and You’re Out” in Florida

Florida personal-injury attorneys have managed to put a
proposal on the November ballot to delicense physicians who have
three malpractice judgments. “No more than a few hundred
practicing physicians would lose their licenses” if the measure
passes (St. Petersburg Times 7/21/04).

This proposal “appears to be a P.R. stunt, and also leverage
to coerce physicians into settlement,” writes AAPS General
Counsel Andrew Schlafly.

The referendum reads as follows: “PUBLIC PROTECTION FROM
REPEATED MEDICAL MALPRACTICE: Current law allows medical doctors
who have committed repeated malpractice to be licensed to
practice medicine in Florida. This amendment prohibits medical
doctors who have been found to have committed three or more
incidents of medical malpractice from being licensed to practice
medicine in Florida. (Settlements are excluded.)”

New Jersey Deals Blow to Private Contracting

On April 17, 2003, a New Jersey court rejected a hospital’s
claim for $257,189 against a patient for post-Medicare Part A
services in Valley Hospital v Halina Kroll (Passaic Co.,
No. PAS-L-005389-01). Valley Hospital had a signed contract with
the patient, but the court held that it was unenforceable as a
contract of adhesion (a one-sided agreement, typically “take it
or leave it”). The court held that state regulations ban balance
billing even if federal rules do not. Alternatively, the hospital
argued for recovery of the reasonable value of its services. The
court responded that government payments cover the reasonable
value of the services, almost by definition.

Dr. Herrera’s License Reinstated

Upon the order of a Montgomery County judge, the Alabama
medical licensing agency reinstated the license of Pascual
Herrera, Jr., M.D., which had been revoked on the pretext of
“poor handwriting” in the hysterical aftermath of the death of
several youths who had used OxyContin. Dr. Herrera had not
prescribed OxyContin to any of those patients.

AAPS filed an amicus brief in support of Dr. Herrera
(AAPS News, May 2003), posted here.

AAPS Files Amicus in Sham Peer Review

If physicians complain about a quality issue, a hospital can
retaliate by bringing a licensure action as well as by revoking
staff privileges. Several years after the Tenet-owned hospital
Encino Tarzana Regional Medical Center filed a complaint, the
California Medical Board finally acted by ordering a psychiatric
evaluation of Gil Mileikowsky, M.D., under pain of license
revocation. The Board took no corrective action on Dr.
Mileikowsky’s allegations against the hospital, including removal
of a patient’s fallopian tubes without consent, a serious
battery, and improper destruction of frozen embryos.

“AAPS is all too familiar with the use of state-mandated
psychiatric examinations to unfairly destroy good physicians. The
state selects and pays the psychiatrist…. AAPS has painfully
watched physicians agree to seemingly innocuous psychiatric
examinations paid by their adversaries, only to be shocked at how
the evaluation departs from the standard of care in finding
impairments where none exist. These tragic misuses of psychiatric
examinations to retaliate against physicians have become a
national calamity for medicine,” writes AAPS in a Motion of Amicus Curiae in
Mileikowsky v Medical Board of California (Case No.
04CS00969).

The Business and Professions Code section 820 allows such
examinations only upon an express showing of a threat to patient
safety, which did not occur in this case.

The brief is posted at www.aapsonline.org.

Biometrics to Detect Medicaid Fraud

The $10 million Medicaid Integrity Pilot in Houston, TX, the
first use of biometrics to identify Medicaid recipients seeking
care in doctors’ offices, is expected to curtail about $30
million in fraud in one year. Participants receive identification
cards with a microchip imbedded fingerprint. About 900 physicians
and 180,000 patients volunteered to participate. “Providers try
to use fingerprint readers as discretely as possible” to avoid
stigmatizing patients (BNA’s HCFR 7/7/04).

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Correspondence

The Movement Has Begun. The Medical Society of the
State of New York recently surveyed physicians about
credentialing and recredentialing for managed-care plans. The
real story here is how many physicians are beginning to drop HMOs
and other insurance plans. Never before have we seen so many
physicians opting for patient-based care. The movement away from
“participation” has started. As one physician commented, “If the
physicians had refused to sign up for these plans, we wouldn’t be
having these problems. I’ve remained independent, at great
financial cost, but with a better quality of practice and a
better family life.”

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

The Dangers of the “Quality” Movement. I enjoy reading
Bob Moffit’s monthly piece and usually agree with him. However,
in the July 2004 supplement I find one major point of
disagreement. In advocating for price transparency, Dr. Moffit
says: “We need to accelerate the trend toward price disclosure,
along with readily available information on quality of care and
performance.” We must never let government or other centralized
entities (such as HMOs) be arbiters of quality or performance,
let alone reporters of such. Advocates of “best practices” and
evidence-based medicine, including Hillary Clinton and cost-
containment Republicans, are pushing this proposal across the
country. Although Dr. Moffit’s statement is qualified with the
words “readily available,” even that begs a definition. Who has
this data? And where did they get it? And who decided what was
“quality”?

In light of the egregious actions taken against physicians
in the name of prosecuting fraud, it should be obvious that
physicians who accept government dollars but don’t “measure up”
according to government-defined standards could become the next
targets of prosecutors. As advocates of “quality improvement” so
often reiterate, “quality” addresses “underuse, overuse, and
misuse” of services. It’ll be hard for any physician to escape
that all-encompassing net.

Twila Brase, R.N.

Citizen’s Council on Health Care, www.cchc-mn.org

Let Patients Decide. The market has a way of sorting
things out when the customer is king. Sure, some people might get
hurt. But people also might get hurt with regulations. Who is one
person or group to decide? Let the person who owns his or her own
body decide. There is no reason to protect producers. The same
group that issues licenses to physicians can restrict them for
any reason they want such as our clinic’s refusal to take third-
party payment. A medical license could become contingent on my
practice billing and accepting Medicare and Medicaid and treating
everyone who comes to my door. That is not acceptable to me.
Therefore, I say abolish the boards that protect physicians
before they make political correctness a requirement for
practicing medicine.

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

“Underserved” Areas. Dumping money into community
health centers is not going to solve the problem of lack of
doctors in rural communities. Promising doctors that they will
have to compete with free or low-cost care provided by taxpayer-
supported clinics is not an effective recruitment tool. If we
could just remove that pesky constitutional clause about
indentured servitude, we could simply force doctors to relocate.
After all, it would be for the good of the community.

Sean Parnell, Heartland Institute

Junk the Codes. We have insiders within the CPT code
training camps who will testify that they could not get their
students to pass their final exams with any degree of statistical
validity. They were simply “passed”: the “No Coder Left Behind”
program. And the coding industry complex makes millions of
dollars certifying people in this area of “expertise.” The CPT
system is the vehicle of choice for diverting funds that have
been earned by skilled professionals.

The experts said that CDs would never replace vinyl records;
people had too much invested in the system to make such a radical
change. And the experts said….

Herbert Rubin, M.D., UCLA

Finding Quality. I believe one could go to any mid-
sized town in the U.S., talk to 20 people, and come away with an
idea of who the best pediatrician is. It might take a little
longer for other specialties. This requires having confidence in
people instead of relying on statisticians. Because we really do
know, or can find out, who is best (and probably worst), we need
to allow people to pay more to see the best, and less to see the
mediocre. That is how we will improve quality.

Greg Scandlen, Galen Institute

What’s Effective Becomes Cheap. I’ve observed that the
more expensive a treatment or procedure, the less effective it
is. The $100,000 operation to save someone’s life usually leaves
him crippled or medically dependent, or fails completely, like
Mickey Mantle’s liver transplant. I call it Moore’s Law.

Gerry Smedinghoff, Phoenix, AZ

Why MRIs Cost $1,200. It’s simple: Medicare and managed
care. In a free market, costs would be coming down because newer
technology would be trying to replace it.

Frank Timmins, HealthBenefitsReform group

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Tax-Advantaged Medical Coverage

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

This is a review of the four types of currently available tax-
advantaged accounts, which may or may not require high-deductible
insurance policies: the FSA, HRA, MSA, and HSA.

Of these medical spending accounts, the most free-
market, patient-centered, and consumer-driven are Health Savings
Accounts and their precursors, Medical Savings Accounts. The
other two types invite consumer participation but corrupt the
possibilities to truly influence spending choice because the
account users are not the account owners. Flexible Spending
Accounts (FSAs) and Health-Reimbursement Arrangements (HRAs) are
beneficial but forfeit the rights of ownership.

FSAs, HRAs, MSAs, and HSAs, however, all are creatures of
federal law that marry health insurance plans to tax-favored cash
accounts to pay for medical expenses. They all have potential to
control medical inflation. They all give patients as consumers
some control over their own medical decisions. They require
patients as consumers to take some financial responsibility for
consequences of their decisions. But only the MSAs and HSAs
achieve the rationality and savings of private ownership and
free-market medical decisions.

Flexible Spending Accounts (FSAs)

Flexible Spending Accounts, the so-called Cafeteria Plans,
permit employees to divert a portion of their paycheck, tax-free,
to pay medical expenses not covered by insurance. IRS Section 125
controls contributions of pretax dollars for spending on medical
care. FSAs are sponsored only by employers. The self-employed or
those who work for an employer who does not provide FSAs cannot
create FSAs.

In theory, FSAs should encourage thoughtful, circumspect use
of medical money because the employee as consumer is using his
own money, rather than the insurance company’s, to pay for
routine care. In practice, however, FSAs promote wasteful
spending because the IRS code makes FSAs “Use It or Lose It”
money. Unused funds at year-end revert to the employer. Employees
usually go on an annual end-of-year lavish medical spending
spree. President Bush has proposed eliminating this perverse
incentive by allowing unused funds to roll over to the following
years.

Health Reimbursement Arrangements

Health Reimbursement Arrangements (HRAs), created in June
2002, resemble FSAs. HRAs are not available to the self-employed.
Companies set up HRA plans for their employees and, using
employer funds only, permit employees to pay with tax-free
dollars medical expenses not covered by insurance. HRAs became
valuable when the IRS issued revised regulations allowing unused
dollars in HRAs to roll over from year to year, mitigating “Use
It or Lose It” binges.

One of the hidden wonders of the HRA is that an employer
could provide, for instance, $8,000 for medical uses, not by
raising salaries $8,000 (and paying payroll and income taxes on
the new money) but by contributing the $8,000 to an HRA that the
employee can withdraw tax free to pay for individual (or union-
sponsored) coverage. For the first time since ERISA was passed,
employers can pay for workers’ individual health premiums on a
tax-preferred basis. An HRA does not require a high-deductible
plan. An HRA can work with any insurance plan, or no insurance
plan at all. It can be for any amount of money. Although it is
employer-only money, the employee can spend it on any 213(d)
qualified expense, which includes insurance premiums.

Nonetheless, HRA monies are not employee-owned and are not
“portable.” If an employee changes jobs his HRA cannot be moved
to a new employer. In some instances the employee with a new job
may have rights to use the HRA in the former employer’s company.
Some employers allow the employee who changes jobs to use the HRA
for the same number of months into the future as he had been
employed by the company with the HRA. But since the sponsoring
employer owns and controls the accounts, there is little
incentive for employees to control spending. As with FSAs, the
best way for an employee to gain value from an HRA is to spend
every penny. There is, however, some fiscal responsibility and
freedom of choice.

Health Savings Accounts (HSAs) and Medical Savings Accounts
(MSAs)

The most exciting new medical instruments for all Americans
are Health Savings Accounts (HSAs), the brand-new free-market
medical mechanisms legislated into law in the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003.
HSAs closely resemble Medical Savings Accounts (MSAs) that were
created in 1996 by HIPAA, the Health Insurance Portability and
Accountability Act. But HSAs are superior. HSAs and MSAs credit
each American’s intelligence, individuality, discretion, and
responsibility. Every HSA or MSA has two distinct but
interconnected parts:

• a personal medical savings account
• a catastrophic health insurance policy with a high
  deductible.

Visualize an HSA as a benevolent handshake. One hand is the
actual savings account. The other hand is catastrophic medical
insurance, whose deductible equals the amount of money annually
placed in the HSA savings account. If you prefer, think of an HSA
as a pair of pliers. The two arms of this tool move in synchrony
and together expand the reach and power of the HSA owner’s hand.

HSAs are not discounted prepayments for medical care. HSAs
utilize true medical insurance that protects assets against
expenses for physical catastrophes we hope will not happen. Since
HSAs will be far more popular and available than MSAs, I shall
refer only to HSAs, but any description here of an HSA pertains
also to an MSA. The older MSAs intentionally were restricted by
Congress to 750,000 people and dedicated to those who are self-
employed or who work in companies of fewer than 50 employees.
MSAs in theory are open to people who qualify for Medicare but in
actuality, no Medicare MSAs exist because no insurance companies
have had the corporate courage to leap the huge number of federal
and state legal hurdles to create catastrophic polices that will
conform to Medicare law. The new HSAs emulate the best of MSAs
with few restrictions on who can buy them. One irony is that
these magnificent consumer-directed, patient-centered HSAs
created by the Medicare bill exclude people covered by Medicare.
But in due time we shall fix that folly.

Companies began offering the new accounts on January 1,
2004, to thousands who applied. Both parts of HSAs are
established at the same time. Anyone under age 65 is enabled to
deposit into an HSA tax-free up to $2,600 for individuals and
$5,150 for families. Some of the same banks and companies that
establish the HSA savings account will sell or arrange for the
consumer’s purchase of a catastrophic health insurance policy.
You can make your own contribution to your HSA savings account.
Your employer can provide the annual amount. Or you and your
employer each can contribute funds. Again, the amount in the
savings account will be roughly equal to the deductible of the
insurance policy.

President Bush clearly made HSAs “a cornerstone of his
health reform plan,” said Greg Scandlen, director of Galen
Institute’s Center for Consumer Driven Health Care. The
President’s plan allows 100% above-the-line tax deductibility of
premiums for catastrophic insurance associated with HSAs. People
who purchase catastrophic policies on their own are able to
deduct 100% of the premiums. This full tax deductibility “will
supercharge HSAs and make them an even more attractive option for
millions of Americans, including the uninsured.” Under current
law, the health insurance is tax-favored if individuals are self-
employed or their employer purchases the policy for them.

With money from your HSA savings account, you pay directly
any physician you choose or any pharmacist for any medicine you
choose for whatever minor medical problems you reason it worth
paying a practitioner to solve. If you have a medical disaster,
then the catastrophic insurance takes over payments after you
meet the deductible.

You, who own your body and mind, decide what is medically
necessary along with the doctor providing medical care. No one
tells you whether you are permitted to go to a specific doctor or
when or how or why. No one tells you what treatment is or is not
“covered.” No one tells your employer why you went to a physician
or that you went or where. No one transmits your confidential
medical records to an insurance company adjuster. You maintain
confidentiality of your medical record for all routine medical
problems. Only if and when your catastrophic insurance policy
starts to pay for care is there any reason for anyone but you and
your physician to know what is in or not in your medical record.

Moreover, you totally own your HSA savings account. You can
deduct from it small or large sums to pay directly or you can use
a debit card to pay any valid medical expense. The only
restriction is the alphabetical list in IRS Code Section 213 (d)
that identifies valid medical deductions on taxes. This includes
acupuncture and physical therapy as well as drugs or surgery.

Since what you do not spend you keep, some call such an
account a SIKI, Spend It or Keep It. That is a powerful incentive
to prudent spending. HSAs respect your intelligence,
individuality, initiative, and financial judgment. You determine
the benefit versus the cost of each medicine or procedure before
consent. Do you prefer the generic or the brand-name drug?
Conservative or aggressive treatment? You decide.

Because you are paying cash, many practitioners will welcome
you with enthusiasm and provide a cash discount on their fees
because you honor their talent by directly exchanging your
valuable money for their valuable skill, the customary
capitalistic method of exchange in America. Furthermore, by
paying cash at time and place of service you are saving the
doctors’ precious time and money. Good cardiologists, internists,
dermatologists, and urologists have the same market incentives to
behave justly and fairly when selling their medical talents and
services as do other American professionals, craftsmen, and
purveyors of honest products.

Deposits to HSA are tax-free, as are earnings and medical
expenditures. HSA money is taxed only if you withdraw it for
nonmedical purposes. Just as with an IRA from which money is
removed before the statutory time, nonmedical use, before age 65,
generates both ordinary income tax and a 10% penalty. After 65,
the penalty does not apply. Since the HSA is your money, not your
employer’s and not the government’s, you can roll over whatever
is left over in your account at year’s end and let it earn
interest. Again, that is comparable to an IRA.

Furthermore, even if you suffered a medical disaster after a
healthy year in which you rolled over your unused money, you
would spend no more from the HSA account than the stipulated
deductible for that particular year. If, for instance, the
deductible is $3,000, you will pay only $3,000 cash even if by
that time you have $79,000 accumulated in your HSA. A reasonably
healthy person cannot fail to make money with an HSA prudently
invested. Customary health insurance, the bogus insurance that is
discounted prepayment for medical services, produces for the
policyholder at year’s end nothing but a canceled check.

The HSA is yours no matter where you work, no matter whether
you change from job to job, and whether or not you work. It is
completely portable. Like other property that you own, you can
convey it to your family upon your death.

With HSAs, people have the same legal protections and
ethical incentives as elsewhere in the American economy. HSAs are
predicated on contract-law protection against false promises and
overpayments. HSAs diminish the severest intrusions upon freedoms
of physicians and patients imposed by laws governing managed care
and Medicare. HSAs avoid: criminalizing physicians; qui tam
whistle blower actions for False Claims; capitation; most forms
of community rating; violation of confidentiality; third-party
definitions of medically necessary treatment; and medical
rationing by third parties. HSAs have no need of a Medicare
Operation Restore Trust with its harsh penalties, fines,
forfeitures, and prison terms for physicians and surgeons. Under
HSAs the physician’s allegiance is to the patient who pays, not
to a third-party payer. Trust not violated needs no restoration.

HSAs are rational, logical, responsible salutes to the
intelligence and comparative good health of America. Patients
freely select their doctors. Employers pay no more, usually much
less. Medical innovation and medical entrepreneurship thrive.
Doctors need not fear inadvertently violating arcane rules.
Insurance carriers, marketers, and agents benefit. Banks benefit.
Everyone wins except the social engineers who want to impose
“protections” against personal freedom.