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

Volume 48, No. 8 August 1992


As federal lawmakers try to understand the nation's medical insurance (``health care'') crisis, they are looking in all the wrong places, according to a recent study by the National Center for Policy Analysis (NCPA). (See Policy Backgrounders #118-119, June 10 and 22, 1992.)

``The crisis was created in Washington,'' stated NCPA President John Goodman, PhD.

The main culprits responsible for rising costs and insurance failure, according to Goodman, are Medicare, Medicaid, and federal income tax law.

The explosion in medical costs began after the enactment of Medicare and Medicaid in 1965. Between 1940 and 1960, medical spending rose modestly, from 4% of GNP to 5.2%. Since 1960, the percentage of gross domestic product (GDP) spent on medical services has almost tripled, reaching about 13.4% in 1992. The Medicare and Medicaid share skyrocketed from 5.9% of total medical spending in 1967 to 28% in 1990. When tax subsidies for medical insurance are included, the government's share of medical spending has increased from 25% in 1960 to 53% today.

State budgets have similarly exploded due to Medicaid. In Arizona, the percentage of the state budget spent for medical services increased from around 4.8% in the years prior to 1982, when the state's Medicaid substitute (the Arizona Health Care Cost Containment System) was started, to 17.3% in 1992. This was despite the enormous infusion of federal dollars, which were supposed to relieve pressures on the state.

Many believe that Medicare and Medicaid provide services that people would otherwise be denied. In that case, the expansion of the programs might be justified. However, the main effect of government spending has been to increase prices rather than services. According to the Health Care Financing Administration (HCFA), every extra dollar spent on health care buys 65 cents in increased prices and only 35 cents in real services.

Nevertheless, the federal government continues to expand Medicare and Medicaid benefits. ``Cost containment'' efforts consist mainly in restricting payments to physicians and hospitals, with the result that an increasing share of the cost is shifted to the private sector. The cost-shift burden on private payers is expected to rise from 25% in 1989 to about 38% in 1992, according to a study by Healthcare Financial Management Assn (AM News 6/1/92).

Private medical spending has also exploded over the past three decades, and the increase parallels the rapid expansion of third-party payment. The patient's share of the bill has declined from 52% in 1965 to 23% today.

Like public policies, most private medical insurance policies feature low deductibles, which fuel spending in several ways: (1) Some persons abuse the system and consume services they do not really need; (2) People tend to be less careful shoppers when spending what appears to be other people's money; and (3) Using third parties to pay small bills leads to wasteful administrative expenses. (A fee of $25 can easily result in $50 in costs by the time the claim is processed and monitored.)

Most people would be much better off if they purchased a high-deductible policy and deposited the premium savings in a bank account to use for small medical bills. However, the federal government punishes people for this prudent behavior with heavy taxes.

Low-deductible insurance paid for by employers is bought with pre-tax dollars, escaping a 28% income tax, a 15.3% Social Security tax, and a 4-7% state and local income tax, so that the government is effectively paying half the premiums. The uninsured, on the other hand, have to pay for their medical care with after-tax dollars. (The need to pay for insurance with after-tax dollars is the reason many employees of small businesses are uninsured in the first place.)

``Our health care system has been shaped and molded by the tax system,'' Goodman stated. ``If we want substantial change, we have to start by changing the tax laws.''

Goodman notes that federal tax policy is unjust as well as economically unsound. Based on the average tax subsidy given to those with employer-provided insurance, the uninsured pay about $6 billion to $7 billion in extra taxes each year. (This is roughly equal to their unpaid hospital bills.) High-income families receive six times as much benefit as low-income families from the tax subsidy for medical insurance. Thus, federal tax policies undermine the social safety net.

The safety net is also weakened by federal spending programs. Low-income workers pay 2.9% of their income each year to support Medicare, i.e. to benefit those who have a higher average income and more assets than the workers do. For the most part, NCPA states, federal medical dollars go for the benefit of the nonpoor and in the process drive up prices for the poor.

Changing the federal policies that have caused and exacerbated the problem is the first step toward reform. Additionally, Goodman recommends that medical insurance, like life insurance, should be personal, portable, and guaranteed renewable. Direct subsidies for low-income, uninsurable people are far preferable to the bad ideas currently advocated: guaranteed issue and community rating.

For a copy of NCPA reports, write NCPA at 12655 N. Central Expy, Suite 720, Dallas, TX 75243.

Efficiency and Equity: Socialized Medicine is Not the Model

Foreigners travel to the US to learn about hospital efficiency, not the other way around, observed John Goodman, PhD, speaking to the American Farm Bureau Federation in Chicago on June 22. The only way our medical system can be called inefficient in comparison with that of Britain or Canada is to confuse efficiency with lower spending.

In England, one in four hospital beds is empty and one in four serves as an expensive nursing-home bed, Goodman said, while at the same time one million people are on waiting lists. The politicians now pledge that no one in Britain should have to wait longer than two years for surgery (as 50,000 people did). In Canada and New Zealand, one fifth of the hospital beds are empty and one fourth are used as nursing home beds.

Although socialist rhetoric emphasizes ``equality,'' rural populations and ethnic minorities suffer far worse discrimination (in terms of access to specialized medical care) in Canada than in the US. Considering only the Native American (Indian) populations north and south of the border, life expectancy for men is 5 years longer in the US, and infant mortality is twice as high in Canada.


Baucus Addresses AAPS at Montana Meeting

``No more scotch tape and baling wire,'' said Senator Max Baucus, a member of the Senate Finance Committee, who spoke at the AAPS regional meeting in Great Falls, Montana, on June 20. ``It's time for fundamental reform, not tinkering.''

Although he does not believe that significant changes will occur in this session of Congress, he thinks they will not be long delayed.

The Senator believes that everyone has the right to access to health care, but that rationing is essential for containing costs. (Dr. Pamela Benson pointed out the contradiction.) He thinks that rationing is like industrial policy-we have it now.

Medical insurance as an employment benefit was an ``accident of history,'' the Senator said, a side effect of the Nixon wage- and-price controls. Increases in health benefits were not counted as a wage increase.

In response to Kent Masterson Brown's comment that increased costs resulted from the infusion of federal dollars, the Senator said that Medicare should be subjected to a means test. He was not willing to commit himself to a position on MediSave accounts, but mentioned that pushing on a balloon in one place made it bulge somewhere else.

After several physicians had explained why they do not think health care is a right, Sen. Baucus asked: ``If you think that, how many of you would be in favor of abolishing Medicare?'' Almost every hand in the room was raised.

``The country would collapse,'' the Senator remarked.

William Goodman, MD, of Toronto, explained how Baucus's proposal to ``use the states as laboratories'' had worked out in Canada.

``This is the most interesting meeting I have ever at- tended,'' Sen. Baucus concluded.

AAPS thanks Dr. Paul Gorsuch, Jr., and Dr. Lea Gorsuch for arranging the meeting and the Cascade County Medical Society for their sponsorship.

For information on audiotapes, call 1-800-635-1196.


New Taxes in Canada

Ontario Treasury Secretary Floyd Laughren is ``proud to be fighting the recession.'' One year ago, he raised taxes by more than $500 million while tripling the deficit to $9.7 billion.

The result: Government revenues plunged and the deficit soared to $11 billion (Sunday Sun).

Needed: an original idea for extracting more tax revenue while at the same time constraining demand for government services. Herbert Grubel, Professor of Economics at Simon Fraser University, proposes adding the total value of consumed medical care to an individual's income tax return at the end of every year. The imputed income could then be taxed at the filer's marginal tax rate on ordinary income (Fraser Forum June, 1992). This form of a sickness tax would be more efficient than the US version of taxing providers (which taxes the consumers only indirectly), now adopted by Tennessee, Minnesota, Maryland, and Kentucky.


Citizens' Property Seized

Alleging that Cincinnati physician Dr. Clyde D. Brown had billed for unnecessary medical services, the Southern District of Ohio Health Care Task Force filed a civil complaint against him. Additionally, the task force received civil seizure warrants against the defendant's bank accounts and real estate.

This is the second case in which the Health Care Task Force, formed in September, 1991, requested a temporary restraining order to freeze assets allegedly obtained by defrauding government health insurance.

The physician is accused of fraudulent billings totalling $400,000 over three and a half years. Some of these were allegedly concealed by double billing for laboratory tests in ``fragmentation'' and ``unbundling'' schemes.

US Attorney D. Michael Crites stated, ``The seizure of assets is a common tactic in the war on drugs. It will now become one of our major weapons in the war on health care fraud'' (BNA's Medicare Report 6/19/92).

In a nationwide action, about 100 persons, mostly pharm- acists, were arrested and property worth tens of millions of dollars was seized on June 30. The property, including homes and financial accounts, was allegedly acquired by fraudulent billings. The seized drugs included AZT and medicines for hypertension, heart conditions, arthritis, and asthma. About 65% of the inquiry was in New York, but more than 1,000 FBI agents from 16 field offices executed 110 search warrants in Atlanta, Chicago, Detroit, and other cities (AZ Daily Star 7/1/92 and Wall St J 7/1/92).

In Orlando, FL, a sheriff's department drug squad has used asset forfeiture laws to take nearly $8 million from motorists. One woman lost part of an emergency loan to fix a hurricane- damaged home, and grandparents lost part of their retirement nest egg. In 199 of 262 cases reviewed, no charges were filed against the motorist. In only four cases was all the money ever returned. No higher agency reviews the seizures (Tucson Citizen 6/15/92). The FBI considers forfeiture to be a necessary ``tool'' to elicit local law enforcers' participation in the war on drugs.

Rep. Jim Kolbe (R-AZ), who favors wider use of this tool (see AAPS News June, 1992), said the FBI has a good track record but he will look into potential abuse.

Pennsylvania Supreme Court Finds Board of Medicine Procedures Unconstitutional

In a recently published March 18, 1992 decision, the Supreme Court of Pennsylvania held that the Pennsylvania State Board of Medicine violated a physician's due process rights by commingling the prosecutorial and adjudicatory functions. The case illustrates the procedural flaws that plague many state medical licensure laws as well as the increasing willingness of some state courts to provide protections to the individual under state constitutions. (Federal courts, in contrast, have decreased or eliminated such protections in the guise of interpreting the Federal Constitution.)

The case, entitled Lyness v. Commonwealth, State Board of Medicine 605 A.2d 1204 (Pa. 1992), arose as follows. In January, 1985, an emergency meeting of the State Board of Medical Education and Licensure was called by telephone conference. The purpose of the meeting was to consider whether the Board's prosecuting attorney would be authorized to cite physician Samuel S. Lyness, MD, for a formal hearing based upon a complaint of sexual molestation of a female patient. Following the prosecuting attorney's ex parte representation to the Board, seven out of the eight members in attendance voted to cite Dr. Lyness, essentially determining that sufficient evidence existed to initiate disciplinary action against him.

The Board appointed a hearing examiner to preside over the disciplinary proceedings and began to hear testimony in February of 1985. However, criminal charges were filed against Dr. Lyness in several county courts, and the Commonwealth Court stayed the administrative proceedings before the Board in order to avoid tainting the pending criminal proceedings.

Importantly, Dr. Lyness was acquitted of all charges by juries in Montgomery and Delaware Counties in Pennsylvania. Nonetheless, the Board hearing resumed, and the Board amended the original administrative complaint to include seven additional counts, involving six additional female patients who had come forward to allege sexual improprieties on the part of Dr. Lyness over a period of eight years between 1976 and 1984.

At the conclusion of the hearing, the hearing examiner issued his Adjudication and Order, finding that the allegations of six out of the seven complainants were ``overwhelmingly credible.'' His formal Order directed that Dr. Lyness' license be suspended for a period of five years and that Dr. Lyness submit himself for psychiatric treatment.

Both Dr. Lyness and the Board's prosecuting attorney filed an appeal to the Board itself, the same body that had initially found probable cause for an administrative complaint to issue. The Board voted to affirm the factual findings of the hearing examiner but found that the sanction was inconsistent with the gravity of the misconduct. Instead, it ordered the permanent revocation of Dr. Lyness' license to practice in Pennsylvania. Of the original members of the Board who had voted to initiate the proceedings in 1985, three participated in the meeting of March, 1988, at which Dr. Lyness' license was revoked.

Dr. Lyness filed suit, alleging among other things that there existed an improper commingling of prosecutorial and adjudicatory functions by the Board in violation of the Pennsylvania State Constitutional guarantee of due process. The trial court rejected the contention, and Dr. Lyness appealed. The Supreme Court granted Dr. Lynness's Petition for Review limited to the due process issue.

The Court held that property rights include the right of an individual to pursue a livelihood or profession, which in turn triggers the protective mechanism of procedural due process. The Court stated that under Pennsylvania law, even an appearance of bias and partiality must be viewed with deep skepticism in a system that guarantees due process to each citizen. In so holding, Court quoted the Bruteyn appeal, 380 A.2d 497 (1977):

The decision to prosecute is the fundamental prosecutorial decision and necessitates the determination that there is probable cause to believe that a defendant is guilty. Such a predetermination of guilt cannot be forgotten by an individual when he in effect puts on new robes and hears the case as judge.

The Court made it clear that ``actual bias'' need not be present. Due process was violated because the Board that initially determined the existence of probable cause to issue a complaint was the same body that made the final decision, and had a number of identical members. The Court held that under the Pennsylvania Constitution, if more than one function is reposed in a single administrative entity, ``walls of division must be constructed which eliminate the threat or appearance of bias.'' The mere potential for bias and the appearance of nonobjectivity was sufficient to create a fatal procedural defect.

The Court remanded the case to the Board for further proceedings, although one concurring justice stated that this would not adequately protect the due process rights of Dr. Lyness unless the entire Board had been replaced.

The Lyness decision illustrates that state courts may increasingly be called upon to protect the rights of physicians and other professionals who are subject to prosecutorial abuses and the whims of administrative agencies that are empowered to determine the fate of their livelihood. In recent years, the federal courts have so eroded the guarantees of due process under the Federal Constitution as to virtually eliminate any real judicial scrutiny of administrative action. The curious result may be that individual states will be come the perceived protectors of liberty, despite the fact that the Reconstruction Amendments to the Federal Constitution (the Thirteenth, Fourteenth, and Fifteenth Amendments) were based on the presumption that the federal government should play this role.

Unfortunately, the rights of individuals, and physicians especially, may come to depend upon the state in which they live, instead of being uniformly protected through a consistently applied federal guarantee of procedural fairness and impartiality.

In democracies the Welfare State is the beginning and the Police State the end. The two merge sooner or later, in all experience, and for obvious reasons...All modern dictators have at least one thing in common. They all believe in Social Security, especially in coercing people into governmentalized medicine.

Melchior Palyi, 1949

New Members

AAPS welcomes Drs. Harvey Arbesman of Williamsville, NY; Robert Arbon of Provo, UT; Hormoz Ashtyani of Hackensack, NJ; Nachman Brautbar of Los Angeles, CA; Leigh R. Cornelius of Missoula, MT; Harold P. Crissinger of Menominee, MI; Leszek J. Fiutowski of College Park, MD; Sutton L. Graham of Greenville, SC; Robert A. Harman of Belle Mead, NJ; Paul A. Haupt of Menominee, MI; Anne Kegley of Clayton, NM; Charles Lepley of Mount Kisko, NY; Furey A. Lerro of Red Bank, NJ; Seymour C. Nash of Miami Beach, FL; John O'Connor of Great Falls, MT; William Rask of Las Vegas, NV; Cheryl Reichert of Great Falls, MT; David N. Reifsnyder of Clearwater, FL; Michael R. Stefan of Los Angeles, CA; John H. Stone of Great Falls, MT; and James E. Travis of Plano, TX.

Joseph Wagner of Daytona Beach, FL, is a new student member.

AAPS also welcomes members of the American Academy of Environmental Medicine, who joined as an association.


Medifraud Part II: Endtimes

On Sept. 12, 1991, in the Honolulu, HI, First Circuit Court, Judge Virginia Crandall rendered her verdict in the landmark case Carol A. Brown, MD, v. State of Hawaii Dept. of Human Services. Precedent was set for law to be made by administrators, prosecutors, and investigators rather than by the legislative branch of government. Doctors now may be systematically annihilated without having ever broken any law or committed any crime.

This decision was the culmination of a battle begun in August, 1985, when I learned I was under investigation for Medicaid fraud. In September, 1986, I was indicted for 134 counts of Medicaid fraud (see AAPS News Nov. 1990)....The prosecutor reasoned that I should have provided 50 minutes of ``continuous face to face'' therapy every time I billed Medicaid for a 50 minute visit, that I was not allowed to include as part of that visit time spent talking with hospital staff, family members, and others....Yet there was, and is to this date, nothing in the Hawaii Medicaid Providers Manual that specified what portion of a visit had to be personal contact with a patient....

Finally, after ten harrowing days in Court and after having proved I had spent 50 minutes or more in the care of each patient witness, I was acquitted of all charges in April, 1987.

Because I had been persecuted and prosecuted for a crime the definition of which did not exist, I decided to file suit. [The complaints included] negligent administration of the

Medicaid program ...[due to] failure to comply with ...proce- dures as outlined in the Medicaid Provider Manual....; invasion of privacy...and of physician-patient privilege;...[and] tortious interference with contracts.

Between the filing of the suit and the September, 1991, numerous costly, time consuming legal proceedings occurred. ... The Respondents called no witnesses and instead asked for a 401b ruling, i.e. a Judge's determination of the case prior to their presenting any additional evidence. Judge Crandall decided in favor of the State, ruling that since the Medicaid fraud unit is authorized to act independently of the Dept. of Human Services, the protocol set forth in the Medicaid Provider's Manual does not need to be followed, and the provider may be...prosecuted without notification or any attempt at resolution of the dispute short of criminal charges....

The fact that the [prosecutors' and investigators'] defini- tion of psychotherapy was not written and was far more restrictive than that found in the Medicaid Provider Manual and in RVS (the forerunner of CPT) did not matter....This is the equivalent of never defining the speed limit so that it can change at the whim of those in authority.

What has happened to me as a result of all of this: I am out $55,000 in legal fees for my criminal defense/acquittal. I am out more than $125,000 in legal fees for this suit against the State. I am a whole lot wiser....

It is my understanding that we will soon be assigned an electronic beeper which...will allow our Masters to keep track of us (note the new 1992 CPT code book which assigns ``face-to- face'' times to routine office and hospital visits, thus limiting reimbursement for actual total time spent in patient care). As physicians, we are fast losing our civil and contract rights. We are becoming numbered robots whose work is being reduced to service code numbers, which at the whim of administrators, prosecutors, and investigators can be defined by mutual agreement never reduced to writing. Our contracts with these bureaucrats are meaningless. The government has the upper hand. Bureaucrats do not have to abide by the basic rule of contracts concerning good faith and fair dealing. They represent the King, who lives by the Golden Rule: ``He who has the gold, rules.''

Carol A. Brown, MD, Honolulu, HI


AAPS Calendar

August 16-20. 9th Int'l Congress of IATROS, Helsinki, Finland. Call IATROS, (319)283-3491.

October 15-17, 1992. Annual meeting, Seattle, WA.

October 24, 1992. Freedom in Medicine seminar, Columbus, OH. (Note change from Sept. 12.)

Legislative Alert

Legislative Alert: AAPS Report from Washington

The congressional leadership is bogged down on national health care reform. Liberals in Congress are torn over whether to push for national health insurance along the Canadian model, ``play-or-pay'' mandatory employer-based insurance or an expansion of Medicare to cover the entire population. These are the only three alternatives that command the interest or attention of the liberal majority of Congressional Democrats in the House or Senate.

Rank-and-File at Odds with House Leadership. While the Democratic leadership (along with probable Democratic presidential candidate Bill Clinton) has been supporting a ``play-or-pay'' mandatory insurance package, House Democrats are far less enthusiastic. According to a survey conducted by the Democratic Study Group (DSG), a liberal caucus of House Democrats, only 27% of the 98 Democrats who responded picked ``play-or-play'' as their first choice. More significantly, a total of 36% said that they would vote against a bill based on this model. DSG analysts think that opposition by small businesses is having its effect.

In contrast, 73% said that they would not vote against a ``single payer'' plan, while 15% said that they would vote against such a system. House Democrats, particularly liberals, are still wedded to a national health insurance plan.

House Democratic respondents favor requiring individuals to pay for their share of health care costs on the basis of an ``ability to pay'' and show strong opposition to a new system that is not self-financing or likely to add to the budget deficit. The top candidate for financing is a new payroll tax, with both employers and employees equally sharing the burden. This option, according to the DSG, was ranked either first or second from a list of financing options by 45% of the responding Democrats. No matter how the pie is cut, this will be a big tax increase.

Stark and Comprehensive Price Controls. In an attempt to break the political deadlock and move a bill, Congressman ``Pete'' Stark, California Democrat and Chairman of the House Ways and Means Subcommittee on Health, is circulating a draft solution. House Majority Leader Richard Gephardt (D-MO) has been busily engaged in ``shuttle diplomacy'' among House Democratic factions in trying to bring a bill to the floor.

The theme is not universal access or even quality care for all, but ``cost containment,'' i.e. price controls. While the measure has not even been introduced in the House and is yet unnumbered, the details of the new legislative proposal have been dribbling out.

Capitol Hill sources describe the latest draft as a national health insurance program without the financing of the Canadian or the British system.

The key features are as follows:

  • A global budget for all medical spending in the United States, the same type of national budgeting that is found in the Canadian and other national health insurance systems.

    Under the proposal, the annual budget would be set for 1994 at the current trend, minus 1 percentage point.

    The legislative mandate would phase in the level of spending to equal the annual increase in the nominal gross domestic product. The legislative proposal looks toward health care costs stabilizing at 15%.

  • Medicare payment rates. DRGs for hospitals and the RVS for physicians' services would be extended to the entire medical economy.

    The draft proposal sets up a mechanism whereby the Prospective Payment Commission for Hospitals and the Physicians Payment Review Commission would study and ``recommend'' to Congress the payment policies, including the distribution of payment to doctors, hospitals, suppliers of equipment, and others. Capitol Hill sources indicate that balance billing, under this proposal, would be eliminated altogether.

  • Fixing prices for prescription drugs. Under the draft proposal, HHS would set maximum prices for prescription drugs. HHS would also establish a national prescription drug formulary.

  • Opting out by states and HMOs. Under the draft, states could set up their own payment systems for doctors and hospitals, as long as the state systems were approved by the federal government and did not compromise the annually budgeted national costs. HMOs would not be required to pay doctors under the Medicare rates, and the expansion of federally approved HMOs would be encouraged. HMO participation in employer-based plans would be mandatory.

    It does not appear from the draft that doctors, individually, would be able to ``opt out'' of the system. Thus, in many respects, the draft proposal appears to set up a system far less liberal than the British National Health Service, which at least allows doctors the option of private practice.

  • Federal health insurance regulations. Under the terms of the draft, the federal government would set up new regulations for employer-based insurance. Health insurance companies could no longer discriminate against a group or even a member of a group because of their medical conditions, and premiums could not be adjusted solely on a person's medical status. Beneficiaries would have the right to sue insurance companies for legal fees and damages if benefits were to be denied.

  • Required administrative ``simplification''. The draft proposal would legislate a uniform system of electronic billing for all insurance claims. The draft specifies that there would be a single coding system for all diagnoses and procedures, a new uniform system for utilization review and audits, a new federally approved software system for hospitals and doctors to be used in claims processing, a new national ``on-line'' system for physician verification of eligibility and benefits, plus a universal health insurance card. Under the new system, every enrolled person would be assigned an identification number.

  • A new federal program to combat fraud and abuse. Medicare's current policies would be the model of the new program. Targeted practices would include ``dumping'' patients out of hospitals, kickbacks, and the submission of fraudulent claims.

    New federal penalties would be imposed for the submission of false claims to the national ``electronic claims network.'' These would include: fines; triple damages; suspension from the Medicare, Medicaid, and other public health programs; and loss of the right to bill private insurers through the ``regional clearinghouses'' (subsets apparently of a national clearinghouse for claims processing). Criminal penalties for doctors convicted of fraud involving more than $25,000 would be jail terms of up to 10 years, fines or community service in public health service clinics or in medically ``underserved areas'' or wherever there is a ``manpower shortage'' of physicians.

    To bolster the enforcement provisions, the draft proposal creates a national identification system for doctors and patients. The doctors would be assigned their ``universal provider identification numbers,'' and patients would be required to use their Social Security numbers. Enforcement would be in the hands of the HHS Inspector General's Office, which would be increased in size and financed by fines to `` meet the operating costs of the national health care fraud control program.''

  • Expansion of Medicaid and change in Medicaid payment rates. Medicaid eligibility would be expanded to all Americans with incomes below 200% of the official poverty level, as defined by the US Bureau of the Census. According to the authors of the draft, this expansion would provide health insurance to approximately two-thirds of America's uninsured population.

    The national ``floor'' hospital payments would be 80% of the Medicare DRG levels in 1996, 85% in 1997, and 90% thereafter. For doctors, the floor would be based on payments set by Medicare's RB RVS.

  • Medicare expansions. All women over age 65 would be entitled to annual mammograms. All Medicare beneficiaries would get colorectal cancer screening, and influenza and tetanus vaccinations. Most importantly, there would be a new Medicare prescription drug benefit under Part B. For dispensing prescription drugs, the draft proposal resurrects the provisions similar to those of the defunct Medicare Catastrophic Coverage Act of 1988 and establishes a national pharmacy participation program, with a ``point of sale'' electronic billing system, to process claims for Medicare's prescription drugs. Beyond that, the draft calls for the establishment of a national Prescription Drug Payment Review Commission, much like the Physician Payment Review Commission that now advises Congress on doctors' reimbursement.

With the onset of the National Democratic National Convention, Stark wants to move a bill out of his House Ways and Means Subcommittee. But intense internal opposition to this approach from moderate and conservative House Democrats is still blocking any consensus among the ranks of the Congressional majority.

Conservative Democrats and ``Managed Competition''. Making matters even more difficult for Gephardt and Congressional liberals is the utter refusal of House conservative Democrats to buy into national health insurance, play or pay, or the Ways and Means Subcommittee draft on cost containment. Led by Congressmen Charles Stenholm and Mike Andrews of Texas and Jim Copper of Kentucky, members of the Conservative Democratic Forum (CDF), a House caucus of conservative and largely Southern Democrats, propose yet another alternative plan: ``managed competition.'' Recently endorsed by the New York Times, the idea is grounded in the work of Alain Enthoven, a health care economist at Stanford University in California.

The key elements of the CDF proposal are as follows:

  • Health Plan Purchasing Cooperatives. These are basically a pooling of businesses for the purchase of insurance. As members of the cooperative, small businesses will be required to make a choice of insurance plans available to their employees, but they will not be required to buy the health insurance. Employees can buy insurance directly and deduct 100% of basic insurance costs.

  • Accountable Health Partnerships. Doctors, hospitals, and insurance companies will form new, ``improved'' versions of HMOs, PPOs, and other group practices. Public disclosure of costs and medical outcomes in these partnerships will be required by law. These new partnerships would have to offer at least a standard health care plan; there would be no ``experience rating''; premiums would be based on age and geographic location; individuals would not be disqualified from coverage because of pre-existing medical conditions; copayments would be required; uniform claims processing and forms will be required; preventive health will be strongly emphasized; and all plans would be exempted from state mandated benefits.

    The reduction in paperwork effected by uniformity in administrative and claims processing reforms is expected to save $5 billion a year.

  • Tax changes. Under the CDF plan, employers will be allowed to deduct basic insurance costs for employees, but not costs of benefits that go beyond those embodied in a basic benefits package. Under the CDF proposal, employers will only get tax relief for purchasing the least costly health plan that meets federal standards. Employees will be allowed to deduct 100 percent of all basic insurance costs in any case, but not the costs of any extra benefits. Limiting the employer deduction to basic insurance is expected to save $5 to $10 billion annually.

  • Abolition of Medicaid with universal access through a voucher program.

  • Medical liability reform. The CDF proposal adopts the Kyl-Stenholm language of HR 3516.

  • The establishment of a National Health Board. This board would play a role similar to that of the Securities and Exchange Commission (SEC) on Wall Street. It would define the basic benefits to be offered by Health Care Partnerships and establish uniform standards for reporting pricing and medical outcomes.