Recommendations to help address America’s rising healthcare costs.


February 27, 2019

The Honorable Lamar Alexander, Chairman
Senate Committee on Health Education, Labor and Pensions (HELP)
Washington, D.C. 20510-6300

Dear Senator Alexander:

This is in response to your letter of December 11th concerning recommendations to help address America’s rising healthcare costs.  We certainly agree with you that healthcare costs are a growing burden on taxpayers, employers, and family budgets. 

The Association of American Physicians and Surgeons (AAPS) represents thousands of physicians in all specialties in all states and millions of patients nationwide.  It was founded in 1943 to preserve and promote the practice of private medicine, in which physicians are working directly for their patients to provide ethical medicine of the highest possible quality.

You cite your witness, Dr. Brent James, a member of the National Academy of Medicine, who said that 30% and possibly more than 50% of all healthcare spending in America is unnecessary.  This may be true, or even an underestimate, but we believe it would be most productive to focus on pricing. 

It can be difficult to judge unnecessary medical testing, services, procedures, and drugs, as they may be quite beneficial to an individual patient even if not “necessary” by some definition. It is also likely that some patients are not receiving care that would be beneficial or even necessary to them.

Spending depends not just on number of services, but their price. Why are prices so high?

Part of the price increases is, as Dr. James pointed out, excessive and duplicative federal reporting requirements, one very significant cause of the problem.

To put medical costs in perspective, one patient, who had continued pain in his foot after repair of a fracture caused by a steel beam falling on his leg, said that having a CT scan of his foot took about 48 seconds on a device about the size of an office copier. 

He calculated that the per unit time cost of renting this device is twice the cost of renting an oil-drilling rig in the Gulf of Mexico.  He pointed out that he was billed $50,000 for an operation that took two hours of a surgeon’s time.  The surgeon was paid only a small fraction of this amount.

Can such services be offered for less?  One way to find out is to see whether there are examples of high-quality services being offered for much less.  Prices that are posted online at the website of the Surgery Center of Oklahoma ( may be as little as one-tenth what Medicaid is paying for similar services at a nonprofit hospital.

As your letter points out, while Republicans and Democrats may be locked in a stalemate over the cost of insurance in the individual health insurance market, where only 6% of all Americans purchase their medical insurance, “We will never get the cost of health insurance down until we get the cost of healthcare down.” 

We agree that the price discipline of a free market, which requires honest price signals available to all, is the only way to achieve your objective.  Optimal prices, which bring supply and demand into balance, can only be determined by voluntary interactions between buyers and sellers. 

Barriers such as Certificate of Need laws need to be eliminated.  Barriers such as the prohibition on the expansion of physician-owned hospital in the Affordable Care Act need to be removed.  Regulations on insurance such as the “minimum essential benefits” in the Affordable Care Act need to be struck down permanently.  The federal government has no constitutional authority to interfere in the health insurance market, and has certainly demonstrated its incompetence at doing so. 

Reviewing your questions, you ask:

1.What specific steps can congress take to lower healthcare costs, incentivize care that improves the health and outcomes of patients, and increase the ability for patients to access information about their care to make informed decisions? 

  • The answer is that Congress must do everything it can to remove barriers to competition, and to improve transparency.  Congress also needs to rein in the Food and Drug Administration’s restrictions on free speech, which prevent patients and physicians from learning about off-label uses of drugs and devices.  The federal bureaucracy should not try to pick winners and losers in the medical market, or other markets. 

2. What do Congress and the Administration need to do to implement those steps?  Operationally, how would these recommendations work?

  • Congress and the Administration need to encourage innovation by eliminating costly counterproductive regulations.
  • Helpful legislation would prohibit (i) steering of patients by insurers to their own providers, and (ii) gag clauses that prevent insurers from telling enrollees about other provider options, or from providing incentives to enrollees to go to less expensive providers.
  • Government needs to support federal antitrust agency guidelines that protect and promote competition in the health care industry and carefully scrutinize mergers. 
  • Congress needs to improve Medicaid patients’ ability to access private care by removing the ACA requirement that mandates enrollment of physicians ordering and prescribing for Medicaid patients.

3. What are the potential shortcomings of those steps, and why are they worthy of consideration despite the shortcomings?

  • Under conditions of freedom, people will sometimes make wrong choices.  However, the free market gives the best results that can be obtained, as history has shown.  People bear the cost of their own mistakes. Government agencies can impose enormous costs on Americans and never be accountable for the results.

Thank you very much for the opportunity to comment. Please refer to our letter of July 27, 2018, for further suggestions. This is available at, and a hard copy is enclosed,

Sincerely yours,

Jane M. Orient, M.D.
Executive Director

STATEMENT of Association of American Physicians and Surgeons

To: The United States Senate Committee on Health, Education, Labor, and Pensions:

Hearing on “How to Reduce Health Care Costs: Understanding the Cost of Health Care in America”

June 27, 2018

Chairman Alexander, Ranking Member Murray, and Members of the U.S. Senate Committee on Health, Education, Labor, and Pensions:

The Association of American Physicians & Surgeons (“AAPS”) is a non-profit membership organization of physicians and surgeons who are mostly in small, independent practices.  Founded in 1943, AAPS defends and promotes the practice of private, ethical medicine.  AAPS has members in virtually every specialty and State, and AAPS speaks out frequently about issues concerning patients and medical practice. 

Thank you for this opportunity to submit a statement for the official hearing record.

Growing evidence demonstrates the cost and quality advantages of care delivered by physicians in private practice as compared to care rendered in hospital-owned practices.

Past HHS Coordinator for Health IT, Farzad Mostashari, M.D., concludes, “recent evidence suggests that small, physician-owned practices, while providing a greater level of personalization and responsiveness to patient needs, have lower average cost per patient, fewer preventable hospital admissions, and lower readmission rates than larger, independent- and hospital-owned practices.” (Ann Fam Med. 2016 Jan; 14(1): 5–7,

In fact, “A 49% increase in hospital-employed physicians between 2012 and 2015 led to a $3.1 billion jump in Medicare costs related to four specific procedures,” according to an Avalere analysis (Medscape 11/2017, In addition, independent physicians and surgeons are leading the movement towards increased price transparency which puts downward pressure on prices system-wide. For instance the Surgery Center of Oklahoma (SCO) is proof-in-concept that price transparency increases access to lower cost, high quality medical care.  Time recently featured this pioneer offering cash prices directly to patients often one-tenth the list price of procedures at hospital facilities:  Direct Primary Care is another innovative model led by independent physicians that results in lower costs for both routine and chronic care, and related services like imaging, labs, and prescriptions.

Nonetheless, the consolidation of physician practices into larger hospital and insurer owned groups continues. The AMA reports: “The proportion of patient care physicians who have an ownership stake in their medical practice dropped below 50% [in 2016], marking the first time that physician practice owners did not comprise the majority since practice arrangement trends have been documented.” (AMA Policy Research Perspectives,

Despite the clear advantages to patients of independent medicine, myriad laws and regulations are driving the consolidation of independent physicians into hospital employment and are too numerous to mention all of them in our comments today. So we will focus our response on targeted changes we believe are simple first steps to correcting decades of overregulation that create anti-competitive barriers.  For an overview of broader changes we believe are needed for lasting change, we refer the committee to two AAPS white papers: one on Repeal and Replacement of the Affordable Care Act, and another on Medical Financing Reform

We encourage the HELP Committee to pursue the following changes in order to help achieve lower costs:

1) End the GPO/PBM Anti-Kickback Safe Harbor

The Federal statute granting this “safe harbor” is 42 U.S.C. 1320a-7b(b)(3)(C), the language of which was established by the “Omnibus Budget Reconciliation Act of 1986,” strengthened by the “Medicare and Medicaid Patient and Program Protection Act of 1987,” and subsequently ensconced in federal regulation at 42 CFR 1001.952 (j). 

The provision ostensibly facilitates greater bargaining power for the purchasing of supplies and drugs.  However, the safe harbor has in practice driven up costs and scarcity by perpetuating a system rife with hidden kickbacks, rebates, and single source contracts, that financially benefit GPOs, PBMs, and large manufacturers, but constrain competition and ultimately harm patients.

It is time to repeal 42 U.S.C. 1320a-7b(b)(3)(C) and direct HHS to revoke any related regulations and guidance that protect such improper kickbacks.

Physicians Against Drug Shortages calculates that such “corrupt practices have driven up the prices of drugs sold by PBMs to individual consumers by at least $100 billion annually.”  This is in addition to the $100 billion per year in inflated supply costs that result from kickbacks to GPOs. For additional details see

Diabetes patients are one group particularly hard hit by the collusion between PBMs and manufacturers. CBS News recently reported that “the cost of two common types of insulin increased 300 percent in the past decade” thanks in large part to kickbacks to PBMs. Contracts between GPOs, PBMs, suppliers, and manufacturers are hidden from public view, despite the fact that taxpayers fund nearly two-thirds of every dollar spent on medical care.

This Committee should request, subpoena if needed, and make public, contracts related to the sale of insulin to help shine sunlight on these secret backroom deals.  In addition it should similarly obtain copies of contracts related to other medical products that have recently seen a dramatic rise in scarcity or price: e.g. Baxter’s contracts related to saline market allocation, the Hospira (now Pfizer) contracts for fentanyl, and Mylan’s contracts for Epipen.

Meanwhile, independent physicians are providing tremendous savings to patients with in-office dispensing of prescriptions that cut out the cost increases caused by middlemen like PBMs.  For example, a 72 year old female patient with multiple chronic conditions purchases all nine of her medications through a Direct Primary Care office for $14.63/month. Through her Medicare “coverage” her cost would be $294.25 per month.

2) End IRS limitations on Health Savings Account use for Direct Primary Care

In an environment where options for care are too often being curtailed by third-party payers, while prices soar, Direct Primary Care (DPC) and Health Savings Accounts (HSAs) are innovations that are increasing patients’ access to affordable care by independent physicians of their choice.

However, the clumsy IRS treatment of DPC improperly impedes Health Savings Account holders from utilizing this low-cost, high-quality, practice model.

S 1358, the Direct Primary Care Enhancement Act, would increase patient access to this promising delivery model by simply clarifying that Health Savings Accounts can be used for these arrangements. We urge the Committee members to consider co-sponsoring S 1358 and seeking other avenues to expedite the bill.

3) Prohibit anti-competitive ABMS arrangements with hospitals and insurers.

The American Board of Medical Specialties, in collaboration with hospitals and insurers, imposes costly and counterproductive “Maintenance of Certification” requirements on physicians. This anti-competitive behavior is blocking patient access to physicians of their choice and driving up costs for patients and taxpayers without any proven benefit. Nationwide these costs are estimated to be $5.7 billion over 10 years and 32.7 million physician-hours.

CMS has a longstanding “Condition for Participation” outlined at 42 CFR 482.12, that instructs Medicare participating hospitals to “Ensure that under no circumstances is the accordance of staff membership or professional privileges in the hospital dependent solely upon certification, fellowship, or membership in a specialty body or society.”

While current CMS interpretive guidance of this regulation, outlined in “Pub. 100-07 State Operations Provider Certification, 2008” essentially renders it unable to prevent improper mandatory Maintenance of Certification mandates, past enforcement was reportedly more protective in this regard.

In light of increased attention by courts, state legislatures, medical societies, the media, and others, we encourage Congress to consider how it can prohibit as a condition of Medicare participation, what experts with Federal Trade Commission credentials describe as, “certification requirements that impose costly entry barriers for physicians and the limited quality benefits and information for consumers that result.”

4) Revise and clarify Medicaid rules harming Medicaid patients’ access to independent physicians

ACA Section 6401(b) requires physicians ordering and prescribing for Medicaid patients to be enrolled in Medicaid. This creates barriers for Medicaid patients who wish to self-pay to receive medical care from a Direct Primary Care (or other 3rd party free physician) but wish to use their Medicaid benefits for prescriptions, labs, imaging or other needed diagnostics. This is particularly a problem for Medicaid patients seeking treatment for opioid addiction.

Medicaid patients are thereby losing flexibility to choose a doctor of their choice, even if they are willing to pay for the physician out of pocket. Blocking these patients’ ability to work with direct-pay physicians is harmful to these patients and is bad public policy as it increases costs to taxpayers.

We ask Congress to repeal ACA Section 6401(b) and expand the ability of direct-pay practices to serve these patients, who are too often unable to access care within the Medicaid system.

Similarly, certain states hold the position that cash-pay physicians are summarily prohibited from privately contracting with Medicaid patients.  We know of no federal regulation or statute prohibiting this and ask Congress to explicitly allow increased freedom of physician choice for Medicaid patients.

7) Permit Americans to Disenroll from Medicare Part A

Citizens should  also be permitted to disenroll from Medicare Part A without forgoing the Social Security payments that they have earned. Medicare is, after all, said to be a voluntary program. As the Trustees point out, it is significantly underfunded, yet it is using funds taken from low-income workers and other taxpayers to pay for medical services to retired persons many of whom are willing and able to pay their own costs. This one change, which would be an immediate benefit to the Treasury, would also open the potential for a true insurance market for the over-65 population, as opposed to supplements tied to Medicare. Citizens who choose this option would be relieving the burden on Medicare while adding funds to the medical system, increasing the availability of medical resources.

8) Other Suggestions to Improve Competition and Lower Costs

As we mentioned in our opening comments, there are too many problems limiting competition and decreasing choice that need attention for us to mention them all in our statment. Here are just a few more solutions to areas of concern that we hope Congress will consider addressing in the immediate future:

  • enact site-neutral payments,
  • lift restrictions on physicians-owned hospitals,
  • allow more freedom for medical professionals and patients to contract on mutually agreeable terms outside of restraints of third-party control,
  • encourage transparency of contracted rates between third-party-payers and facilities
  • encourage transparency of contracts between PBMs, pharmacies, manufacturers, and payers,
  • waive CLIA requirements for physicians’ in-office laboratories,
  • encourage the repeal of “certificate-of-need” laws.


Thank you for considering our foregoing comments. Congress must expedite some simple solutions to free as many physicians as possible, and their patients, from harmful  over-regulation and anti-competitive laws. Implementation of the above suggestions would advance the goal of increasing the availability of high-quality care at affordable prices for the American people.