AAPSNews – July 1998


Volume 54, No. 7 July 1998


To science fiction fans, the word “Foundation” will always suggest Isaac Asimov’s famous 1950s trilogy, which the publisher described as “classics…which cover more than a thousand years, producing an ideal universal ruling corporation.”

The Foundation developed the science of psychohistory, which reduced human behavior to complex mathematical equations. In the beginning, the Board of Trustees proclaimed (and believed) that its only aim was to produce the definitive Encyclopedia of all human knowledge. “We are a State-supported, scientific institution….We cannot-must not-will not interfere in local politics.” Fifty years later, it was revealed that the Encyclopedia Foundation was a fraud.

The Foundation gradually established its dominance by controlling education, science, and religion, and manipulating psychological levers. No government could successfully counter the Foundation’s influence. The Foundation had its own morality: the right action was the one that served its purpose, and the purpose was, by definition, Good.

Rereading Foundation nearly 50 years later, one may view the Galaxy as Earth, the imperial planet Trantor as Washington, D.C., and the Foundation’s headquarters on the remote planet Terminus as someplace like Princeton, New Jersey: life imitating art.

The goals of both fictional and real Foundations involve eroding the foundations of society and striving to build a new universe-from the top down-based on science and, paradoxically, historical determinism.

The implications, of course, are not broadcast in clear and unambiguous terms for public enlightenment. The real meaning of Foundation-speak may be inapparent to both speaker and listener. For example, what does Nancy Dickey, M.D., first woman president of the AMA, mean when she says that she wants the AMA to be “proactive, not reactive,” to “reassess the health-care system” and to be “ready with a plan”?

It’s imperative that we look at the foundation of our profession and the ethics and things we revere…because that’s what give us credibility when we try to tell you why you should let us operate on you or try to make health-care decisions with you,” she said (Chicago Tribune 5/31/98).

Are such utterances by spokesmen for organized medicine pregnant with hidden meaning? Or would an analysis by the Asimovian Minister of Logic find that after “eliminating meaningless statements, vague gibberish, and useless qualifications-in short, all the goo and dribble”-nothing was left?

Are the reassurances obtained by the AMA from the Inspector General’s office like those from an imperial functionary, of whom Asimov wrote: “In five days of discussion, [Lord Dorwin] didn’t say one damned thing, and said it so that you didn’t notice”? Asimov’s conclusion: “There are the assurances you had from your precious Empire.”

For examining present-day Foundation goals and methods, a review of documents obtained under the Arizona Freedom of Information Act concerning a 1992 Robert Wood Johnson Foundation grant to the Arizona Dept. of Health Services is instructive. The stated purpose was to solve the problem of “maldistribution of health professionals” so as to improve access to primary care. Final reports mentioned no progress whatsoever concerning the accomplishment of this goal- which was possibly as important as Asimov’s Encyclopedia.

The Foundation, of course, is not allowed to lobby. However, the “partners” in the project (which prominently included the Arizona Medical Association) are very active both in the legislature and with grassroots advocacy groups. Thus, the project helped develop a constituency for “needed state level policy and financing changes.” This is key in a state where citizens place a high value on “individualism and self-reliance” and a low value on government intervention in the form of regulation and taxes. It can be especially useful to bring in “regulatory changes that do not require legislation.”

Another function of the partners is to gather data, as in “community needs assessment surveys.” As with other RWJF grant contracts, this one requires that the Foundation retain a “nonexclusive, irrevocable royalty-free license to use and to license others to use any and all data collected in connection with the grant in any and all forms in which said data are fixed.” Social engineering has an insatiable appetite for data.

Opposition to programs such as “reinventing the health care system” has focused on the government, which in the public-private partnership usually plays the role of Bad Cop. Indeed, government holds the tools of coercion and punishment. But Government is made up of men: How do those men decide how to use the tools? Can they be controlled and manipulated to serve special private interests, who stand to gain vast wealth along with the power to implement, with impunity, an alien, radical, utopian ideology?

It is imperative to shore up the foundations of our civilization. This means fighting for the principles held by the entrepreneurs whose fortunes built the great Foundations and are now being used to subvert our society.

J. Howard Pew started his trust to support individual initiative, free markets, lower taxes, and less regulation. He believed that the “enemies of freedom employ sophistry, obfuscation, and semantics in order to destroy the true meaning of liberty.” He warned against “political witch doctors abroad in the land teaching communism, fascism, planned and dictated economies, [and] government paternalism.” On the public-private partnership, he noted that you can’t mix government and business any more than you can mix pure water with contaminated water and get anything but contaminated water” (see http://www.sbsc.org/crc/ ).

On Profits

In a letter to Physicians for a National Health Plan, William Chop, Jr., M.D., of Waco, TX, writes: I hope each and every one of you will … seriously ponder [these points] as you attempt to enforce your wisdom on 280 million people through the force of the armed might of the most powerful central government on Earth:….When you have government force the sale of equally priced insurance to all, you force some people to give up perhaps the only natural advantage they possess, inexpensively good health, to subsidize other people, many of whom have chosen their own path to ill health. Arrogant, unfair, sinful coercion…!

The free market permits each individual and each group of people who have chosen to cooperate (e.g. families) to “vote with their money,” which represents their time, energy, and work converted to a medium of exchange-thereby choosing to allocate their efforts as they personally see fit…,rather than being forced into the political choices of a distant, biased bureaucracy. Your rage against profits is misplaced. Profits gained by virtue of providing an uncoerced, desirable service are an even and fair trade. The profits you object to are those gained by companies who have been afforded a coercive advantage through primarily Federal “perks”….

Have you soberly and with trepidation examined the history of National Socialist (abbreviated Nazi) Germany or that of the Italian Fascists? What steps are you taking to insure that your own ambitious plans, so similar to the public-private “wisdom” of those intelligent but misguided people, do not progress inexorably into the same hell? Or is your thinking like the denial of a drug addict, “We can handle it, we won’t let it get out of control like [they did]….”

 Charles Courtney of Riverside, IL, writes: Unfortunately, we think the phrase “for profit” is bad while the phrase “not for profit” is magic. As a matter of fact, all institutions, be they tax-exempt or not, must take in enough money to satisfy the expenses generated by the production of the good or service. Section 50(c)(3) of the Internal Revenue Code talks of tax-exempt institutions serving the public and not providing a good or service to a particular set of persons….

Whenever a good or service such as an education, an automobile, a hamburger, entertainment, a house, …accident or sickness insurance, or …[laboratory tests] varies by consumer, then the for-profit motive should be invoked….You do not want courts of law or the police to be for-profit entities since justice and liberty [would] be for sale…..Liberty and justice should not be for sale; they [should] not vary by citizen.


To be considered at the 55th annual meeting, to be held in Raleigh, North Carolina, October 8-10, resolutions must have been received by AAPS no later than Sept. 8.

Instead of the Kennedy-Clinton “Bill of Rights”…

On June 17, AAPS and Americans for Tax Reform will host a press conference with Senator Gramm and other leading opponents of S. 1891, the Clinton “Patients’ Bill of Rights Act of 1998.” Sen. Gramm’s opposing plan will be discussed, and the Patient Protection Pledge will be announced as a means of supporting free-market reforms:

Patient Protection Pledge

The Consumer Coalition requests legislators to sign this Pledge. The Pledge reaffirms that Americans’ rights to Life, Liberty, and the Pursuit of Happiness are also the cornerstones of the American medical system. Patient freedom and privacy must be protected.

I, ____, pledge to the taxpayers and citizens of the ___ District of the State of ___, and to the American people that I will:

Oppose any further government limitation of the right of Americans to buy health services not covered by their current private or government medical plan. I will oppose telling patients how to spend their own money;

Oppose any further government rationing of medical services paid for privately or covered by private insurance plans. I will oppose further limitations on, and government mandates in, private medical insurance;

Oppose further intrusions in the right to keep private medical records private. I will oppose further reporting of private medical transactions to government agencies. I will oppose further government creation of medical data bases from private medical records. I will oppose government imposition of further paperwork burdens;

Oppose further limitations on the right of Americans to contract privately in the medical system. I will oppose forcing government patients, such as those covered by Medicaid or Medicare, to rely solely on government entitlement programs. I will oppose any further creation or expansion of medical entitlement programs.

Action Plan for the Month

Ask your Members of Congress and any candidates to sign the Patient Protection Pledge and send it to us. (Copies available from AAPS, (800)419-4777, or from the web site.) Ask them to oppose the plan to wreck or further damage the private insurance market by the Kennedy-Clinton “Bill of Rights.” The Capitol Hill switchboard is (202)224-3121.

It is not logically possible to support both the Patient Protection Pledge and the Kennedy-Clinton “Bill of Rights” The latter, which has received the strong endorsement of the AMA, is the next increment of Clinton Care, with a Health Care Quality Advisory Board and more price controls plus expensive mandates. It’s a bonanza for trial lawyers, compliance officers, data collectors, software vendors, nonphysician providers, and professional standard writers such as the AMA.

Opting-Out Kits Available

Physicians who wish to exercise their option to opt out of Medicare under §4507 of the Balanced Budget Act may download step-by-step instructions from the AAPS web site ( http://www.aapsonline.org/medicare/optout.html ), Medicare Department.

AAPS Calendar

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

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

Statistical Extrapolations to “Prove” Fraud

by Andrew Schlafly, Esq.

At the request of one of our Directors, I have briefly summarized precedents for combating the unfounded statistical extrapolation techniques of prosecutors, third-party payers, and managed care organizations. This memorandum itself was delayed because of yet another example of misuse of extrapolation-the termination of the hospital privileges of a Missouri physician based on a sample of only 14 cases.

One of several victories in the Rutgard appeal involved our argument against extrapolation in the prosecution of a physician. United States v. Rutgard, 116 F.3d 1270 (9th Cir. 1997). There the prosecutor selected fewer than 0.1% of Dr. Rutgard’s cases, obtained a conviction on that handful of cases, and then argued that Dr. Rutgard’s entire practice was nothing more than a scheme to defraud the government. Then the government and the Court limited the number of defense witnesses. The extrapolation by the government together with the limitation on defense was illogical and extremely dangerous to every practicing physician.

The Court of Appeals agreed with our argument on improper extrapolation and noted “serious misgivings [about] the ruling limiting to 18 the number of patients the defense might present as witnesses to rebut the government’s theory.” Id. at 1280. The Court of Appeals thereby established that a physician may elicit testimony from far more than 18 patients in order to rebut an argument based on extrapolation of evidence. It is unlikely that a jury, after listening to 50 or so patients testify about how great their doctor is, is going to give any credence to a prosecutor’s unreliable extrapolation.

The Court concluded its lengthy discussion (see id. at 1288-90) with the point that “[i]t was the burden undertaken by the government, not the defense, to show that 100 percent of Rutgard’s medical practice was fraudulent.” Extrapolation without proven scientific basis is insufficient-even in a non-criminal context. “[W]e hold that the government failed to prove beyond a reasonable doubt or even by a preponderance of the evidence that Rutgard’s entire practice was a fraud and that all its proceeds were the fruit of fraud.” Id. at 1290.

The disallowance of unscientific statistical extrapolation has arisen elsewhere, including peer reviews. See United States v. Skodnek, 1996 U.S. Dist. LEXIS 9788, *29 (D. Mass. 1996) (holding that no peer reviewer may simply engage in a “searching out ‘horror’ stories” in an effort to remove a physician by unreliable extrapolation from such selected cases). “To qualify a study or opinion poll for admission into evidence ¼there must be some showing that the poll is conducted in accordance with the generally accepted survey principles and that the results are used in a statistically correct manner.” Baumholser v. Amax Coal Co., 630 F.2d 550, 552 (7th Cir. 1980). The “method of selection” must “assure a representative sample.” Commonwealth v. Trainor, 374 Mass. 796 (1978). See also United States v. Scalia, 993 F.2d 984, 989 (1st Cir. 1993) (statistical analysis must be “determined in a manner consistent with the accepted standards of reasonable reliability”); Renfro Hosiery Mills Co. v. National Cash Register Co., 552 F.2d 1061, 1065 (4th Cir. 1977) (the value of “experimental evidence depends on whether ¼the experiment was ¼‘substantially similar’ to ¼ the actual occurrence sought to be proved”); C.A. May Marine Supply Co. v. Brunswick, 649 F.2d 1049, 1054 (5th Cir. 1981), cert. denied, 454 U.S. 1125 (customer survey correctly excluded because it was not “compiled in accordance with accepted survey methods”).

The misuse of statistics is as old as mathematics itself. Politicians and journalists regularly distort polling in an effort to persuade the public of a particular viewpoint. Researchers determined to reach a preordained conclusion have also injected biases into the sampling process.

Prosecutors, third-party payers, and managed care organizations have learned to misuse statistical extrapolation in order to discredit physicians. It requires vigilance to combat this pernicious technique, but with the proper arguments and precedents we can succeed in exposing the distortions.

An Update on the Rutgard Case

Last October, Mrs. Rutgard was faced with an agonizing choice between attempting to negotiate a settlement based on the Court of Appeals reversal of most of Dr. Rutgard’s criminal conviction, or continuing to fight with the government with no end in sight. We had already assisted the Rutgards in opposing yet another case filed by the government after the Court of Appeals decision. The defense in the new case depended heavily on a prior ruling of the Supreme Court which prohibited placing a doctor in “double-jeopardy” by the government bringing a civil case subsequent to a criminal one (the Halpers decision). We recommended settlement now that good precedent has been established. Dr. Rutgard’s release from prison is now in sight and the family’s finances are secure.

The Supreme Court more recently has overturned its double-jeopardy ruling in Halpers, eliminating Rutgard’s primary defense. The Rutgards ended the fight just in time.

Extrapolation by Private Carriers

George McCullars, M.D., Ph.D., of Mobile sent correspondence from Blue Cross Blue Shield of Alabama, showing a method that appears identical to that proposed by Medicare for latest E&M guidelines. A small sample was used (298 visits with 98 actual referenced examples) to generate broad assumptions concerning the practice (1,859 total visits). Only seven ICD-9-CM codes were evaluated. “It appears that only the initial code was evaluated and no concern was given to patients [who] had multiple problems dealt with during an office visit.” Dr. McCullars concluded that the company’s goal is to threaten doctors in order to get them to downcode. It appears that BCBS would like to cut its reimbursements approximately in half.

Dangers of Private Cops

Comments submitted by AAPS on regulations implementing the Medicare Integrity Program are posted on our web site ( http://www.aapsonline.org/medicare/mipcon.txt/ ). This program authorizes HCFA to retain private contractors for audit and investigation functions typically performed by government in other fields such as tax collection. The proposed rule eviscerates protections against conflicts of interest, provides no protection for patient privacy, and violates the Regulatory Flexibility Act.

There is also a new industry in “data mining” by professional relators who file qui tam actions. Since the False Claims Act was amended in 1986, the government has seized more than $1.8 billion from such cases; about 530 actions were filed in 1997 alone. The relators serve as eyes and ears to the government in the hope of fat profits (BNA HCFR 5/20/98).

Members’ Page

Laundered Grant Money. The County Health Department sent me an application to apply for a “Kids First Turning Point Mini-Grant.” This solicitation does not mention the Robert Wood Johnson Foundation as the source of the funds. They say only that the “funding is governmental” and must be disbursed through a “fiscal agent.” RWJF gave the money to the County Health Dept, so it’s now governmental.

Here are examples of what they will fund: “facilitators” (to facilitate what?); “training materials” (to train people to do what?); “leadership training” (leading to what?); “skills building” (what skills?); “training of trainers” (again, goals unspecified); “neighborhood unity celebrations” (a barbecue and beer party perhaps?); and “multicultural activities.”

Should apply for a $5,000 grants to “train” the youth of the community about the dangers of government handouts, dependency, and nonprofit organizations that give money to influence government and promote expanded governmental control of people’s lives? Would they fund my project?

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

Averting a Type II Holocaust. [I worry about] the prospect of Holocaust, Type II, which eliminates undesired citizens by taking their services or products (like Russia taking food owned by Ukrainians), rather than Type I (Germany’s gas chambers). I refuse to subject my patients to required documentation that eliminates time to detect and correct carotid or coronary stenosis, for example. I just carried out all the suggestions in the Twelve Step Program published in the March, 1998, issue.

A question for counsel: Must I contract with government, not to contract with government?

Howard Long, M.D., Pleasanton, CA

Problems and a Solution. From a letter to Senator Gramm: 1. We are essentially filing a federal report in triplicate every time somebody sneezes. So many reports and stupid codes are required that doctors cannot focus on the patient. There is a required special code to designate that operating on a cancer of the nose is not related to a cryosurgical procedure on an ear 29 days ago….Solution: medical savings accounts.

2. When a bureaucrat changes a single rule in Medicare, in Texas alone more than 40,000 personnel must be retrained, perhaps 10,000 computers have to be reprogrammed, and millions of pages of billing documents may have to be discarded…Solution: medical savings accounts.

3. Medical costs are outrageous. Solution: ditto.

4. Patients have lost the right to choose their doctor and their therapy, along with confidentiality. Solution: ditto….

5. Government and corporate employees have for decades had care financed with tax deductions at the expense of sick people who do not work for corporations or govt. Ditto….

Richard Swint, M.D., Paris, TX

Why More Managed Care Problems and No Solution. Lately, the leaders of the AMA have been acting like a bunch of quislings getting in bed with the federal government and managed care companies. Chances are we could expect little else, noting that they are good old boys, standing in line for years for their leadership positions. No wonder the AMA membership is rapidly declining.

Jacob Green, M.D., Ph.D., Jacksonville, FL

[See the Mar/Apr, 1998 Medical Sentinel for compensation of AMA officers and trustees. AAPS officers and directors serve at their own expense — Ed.]

Justifications. Using a psychological concept that Dr. Jay Lifton calls “doubling” (The Nazi Doctors), a person [can] perform two conflicting duties. After WWI, doctors were called upon to “heal” Germany (the Volk) by eliminating its disease (the sick, the nonproductive, the Jews, etc.)….Today, doctors are being told that they and medical costs are destroying the economy. It would follow that the cure is to control costs…by not treating….Just as Germans had no use for the weak, managed care…depends on a strong medical director who can eliminate those who fall short….Dr. Joseph Mengele was a… strong medical director. [At Auschwitz], behavior was justified by studies [and with facts]. “I am here, I have to put up with it. Whether I condemn it or not is really not the issue. The issue is that Auschwitz is an existing fact….I have to go along with it whether it is good or bad.”

Gary K. Keats, M.D., Clearwater, FL

Corporatism. Managed care is not free enterprise. It is Corporatism that would make Mussolini’s advisor Fausto Pitigliani proud. It is the aggregation of billions of dollars into the hands of a relatively small number of companies. Money that once went directly to pay for medical care is now parsimoniously doled out for rationed care, while the bulk remains in corporate treasuries for other purposes. That is why WellPoint Health Network and Health Systems International can afford to set aside three billion dollars in cash into “Foundations” in order to satisfy nonprofit conversion considerations and go “for profit.” The foundations will do “good works,” all contracted back to their creators.

Managed care is the cannibalization of prior investments….It is entirely analogous to the leveraged buyouts of the 80s when productive companies were bought out for their cash flow, creating massive debt where capital assets once existed.

Stephen Katz, M.D., Fairfield, CT


AAPS Report from Washington

by Robert Moffit, Ph.D.

The Rising Costs of Regulation

Every time the Congress or the state legislature imposes a rule, regulation, or guideline on health insurance plans or doctors and hospitals, it is passed on to patients in the form of higher insurance premiums and medical costs. This is elementary.

It is also a fact that rules, regulations, and mandates affect businesses very differently, depending upon their size or their legal status. For example, large businesses often self insure under the federal ERISA statute, and thus escape both premium taxes and state-mandated benefits. This is a significant advantage for big business. Moreover, large corporations get full tax relief for the purchase of health insurance, whereas for a family business, or an enterprise of the self employed, the current tax relief is only 40%. It is not surprising, as the National Federation of Independent Business reports, that approximately 2.8 million hard-working, self-employed Americans have no health insurance.

Under the Balanced Budget Act of 1997, Congress is raising the tax deduction to 100%, but only over a period of 10 years. In the meantime, Congress is making matters even more difficult for small businesses by contemplating mandates at the federal level which will increase their costs even further.

The confusion in congressional health policy is nowhere so glaring as in the area of managed care. President Clinton, who once championed a national organization of managed care networks as the mainstay of his failed Health Security Act in 1993, has no problem today shamelessly denouncing the excesses of the very thing he was once promoting and making them the pretext to impose what he has been working for diligently all along: literally reams of federal regulation on private insurance.

If in 1993 profiteering pharmaceutical companies or “rich doctors” provided an excuse for federal control of American medicine, then that was just dandy. If in 1998 managed care provides an excuse, then that’s even better. There is one constant: increased federal control.

The Congressional Republicans don’t seem to get it, and clatter around in regulatory armor, pretending that somehow they are for something called the “free market” when virtually every policy prescription they offer-from restrictions on patient choice in Medicare to PARCA-advances an agenda that is directly contradictory to that goal.

There is some glimmer of hope that members of Congress, just now digesting the initial reports of how their Health Insurance Portability and Accountability Act of 1996 (the Kennedy-Kassebaum bill) is affecting the individual health insurance market, will begin to comprehend that their actions have unintended consequences.

Under HIPAA, as it is called by the Washington Wonks, Congress expanded the regulatory authority of the Health Care Financing Administration (HCFA) to make new rules and regulation for private insurance companies. Under the mandate of Congress, HCFA now not only runs the huge Medicare and Medicaid programs, but also has the power to issue rules and regulations for HMOs and PPOs, private health insurance “issuers,” if and when the states fail to enforce the HIPAA’s legal requirements. Surely, one of the hallmarks of the policy-making of the Republican Congress is the expansion of the regulatory authority of HCFA. Regulation breeds regulation.

If premiums are increased, what would be the direct and immediate effect? The answers from previous experience at the state level are well known: higher costs and higher rates of uninsurance among those folks who can least afford to lose the opportunity to cover themselves; plus labor costs on business that quickly translate into painful costs on labor itself.

The Barents Group, a Washington consulting firm, has spelled out the economic complications in plain English and rigorous math, in an analysis of proposed federal legislation and its regulatory impact on managed care plans prepared for the American Association of Health Plans. This is the leading professional association of managed care plans-not, of course, the favorite plans of doctors anywhere. But members of the medical profession should take note: the econometric exercise was illustrative.

Assuming the current level of managed-care penetration (about 70% of the employer-based health insurance market), researchers project a $14 billion cost to employers and employees over a 5-year period for every 1% increase in health insurance premiums. Under the “conservative” Barents projection, a 15% increase in premiums means a more than $210 billion cost increase in the period 1999-2003.

Because, as every economist knows, households bear the full cost of health insurance in reality, the increases in medical care expenditures in employer-based systems translate into corresponding decreases in wages and other benefits.

In addition to wage losses, there is bound to be job loss as well. The extent of the job loss is dependent on the size of the cost increase. Using the year 2003 as the basis for the projection, the Barents Group says that a 5% increase in premiums means 159,000 lost jobs by 2003; a 10% increase means 318,000 lost jobs; and a 15% increase would result in 477,000 fewer jobs.

The size of the job loss is affected by a variety of other factors, including the demand for labor, which is, for the moment, enormous. Nevertheless, no Members of Congress or state legislator should be under any illusions about the fact that it will occur. If there is a slowdown in the economy, of course, the results could be very unpleasant indeed.

Fooling All the People Most of the Time

Members of Congress seem to be insistent about “patient rights” legislation-a variety of bills are now on the table- which will add to the costs of medical care and at the same time further restrict patient choice. While the Clinton Administration, a considerable number of Republicans in Congress, and the usual gaggle of health care policy nerds strongly support such measures, the bills contain carefully crafted poison pills, as Michael M. Weinstein (NY Times, May 31, 1998) notes:

“But the experts also know something that the politicians won’t say. These bills of rights, the product of a consumer backlash against restrictions imposed by HMOs, are almost certain to do the opposite of what consumers say they want. Rather than expand consumer options, they will drive patients into restrictive types of HMOs that limit patients to a small roster of doctors. The bills could also wipe out old-fashioned fee-for-service health insurance, which puts medical choices completely in the hands of doctors and patients.”

As Weinstein points out, the new mechanism for government control and the restriction of patient choice is the data collection and record-keeping requirements imposed by current and future legislation: plans would be required to keep detailed records to show how they improve health care “quality” and ensure desired “outcomes,” making them, as Weinstein says, “publicly accountable for how well they prevent, treat and cure illness.” So, he notes, “What the politicians won’t yet admit is that accountability clashes with something else patients prize: choice. The more freedom patients have to choose doctors, the more difficult it becomes for plans to keep track of their doctors.” Many experts say the increase in “accountability” is worth the loss of choice. “But more choice, not less,” Weinstein states, “is what the politicians are promising.”

The Big Mission of the Medicare Commission

The National Bipartisan Commission on The Future of Medicare was created by the now notorious Balanced Budget Act of 1997. The Commission is charged with making its recommendations by March 1, 1999.

The Commission has held its first public hearing [for which, however, no public notice was given — Ed.], and there are more to come. Thus far the most prominent witness before the Commission was Alan Greenspan, Chairman of the Board of Governors of the Federal Reserve System. Greenspan’s testimony was a broad-brush look at the problems and prospects of the financially troubled program.

Greenspan noted that: overall medical costs have amounted to about 13.5% of GDP; medical outlays for persons over 65 are nearly four times the amount of money spend by persons aged 19 to 64; Medicare expenditures have been rising faster than the federal budget; and past approaches like “marginal adjustments” to the program are not likely to be appropriate when the huge baby boom generation starts retirement at the end of the next decade.

Today, the number of persons aged 65 and older is 12.5% of the population. By 2030, that portion of the population will climb to 20%. Holding everything else constant, demographic change alone will add nearly 20% to the cost of medical care in the United States. Big bucks.

Greenspan notes that the essential economic problem in both the public and the private sectors is the insulation of patients from cost: “Indeed, there is a tendency for the insured to seek any medical service expected to offer at least some benefit, regardless of its cost in real resources.”

Additionally, the economic incentives of the Medicare system will incur their own broader economic cost: “Thus, a key question confronting this Commission is whether the current stance of public policy, lacking a market test, is altering medical demand in a way that distorts economic choice and lowers overall productivity and standards of living. If Medicare is to be sustained as a viable program, it is important that this question ultimately be answered in the negative.”

Greenspan notes that under the current system, assuming no changes in structure, there is “the very real possibility” that patient demands will outstrip the capacities of the federal budget: “Medical rationing is anathema to the American psyche, though it often appears in subtle forms. We know, for example, that we can never offer all new technologies or medical procedures immediately to all patients who would benefit. In practice, new technologies are allocated by physicians who use their own criteria to choose the recipients. In this case, the system likely works largely because an innovation that was not previously available does not seem to be missed except by the most knowledgeable. That might not be perceived as fair, but the thought of our political system attempting to improve the process gives me great concern.” Got that right.

While the Balanced Budget Act of 1997 has improved the short-term condition of the Medicare Hospitalization Trust Fund, serious work has yet to be done on the system. Right now, there are almost 4 workers to support every Medicare beneficiary, and the Trust Fund is projected to go broke in 2008. In the Trustees 1998 report, they noted that under optimistic assumptions the Trust Fund could last as long as 2030, at which time there would be 2.3 workers for every Medicare beneficiary; under pessimistic assumptions, it could be depleted as early as 2004. Naturally, as they have in the past, the Medicare Trustees say that “prompt, effective and decisive action” is needed on Medicare policy.

In this connection, Members of Congress and other Washington policymakers might take note of The Next Steps for Medicare Reform, a new study authored by Peter Ferrara, from the Cato Institute. The Cato study calls for a new system of “Health Bank IRAs” for younger workers. The creation of such accounts would allow workers greater choices, while reducing the unfunded liabilities of the system. The Cato study also calls for making adjustments for funding of seniors care in a new defined-contribution system, adjusting funding for seniors by age, sex and geography. Members of Congress have no shortage of good ideas from conservative and libertarian sources for reforming the Medicare system.

The Medicare Fraud Industry

HHS officials recently reported that Medicare fraud is about a $20 billion cost to the system in 1998, a slight decline from last year’s assessment ($23 billion), when federal authorities in the Office of Inspector General at the Department of Health and Human Services said that about 14% of Medicare payments were “improper.” While moving to criminalize medicine in the Health Insurance Portability and Accountability Act of 1996 (Kassebaum/Kennedy), Congress has thus far refused to clean up the regulatory morass that enables a class of predators to take advantage of the regulatory jungles to bilk patients and taxpayers.

In a recent edition of Health Law News, J.D. Epstein observes, “The entire compendium of Medicare law and regulations was (once) easily contained in a single volume of the Commerce Clearing House Medicare and Medicaid Guide. Today, providers would need a U-Haul trailer to carry the statutes, regulations, general instructions, Intermediary and Carrier Pronouncements, etc., to which they are required to adhere. Not only does this make it impossible for providers to be conversant and compliant with every requirement, but the Health Care Financing Administration (HCFA) has also proven to be woefully non-compliant with its own provider payment requirements, as evidenced by the OIG audit of HCFA’s 1996 payments to providers released on July 17, 1997.”

Robert Moffit is Director of Domestic Policy at the Heritage Foundation.

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