The following email message was sent to me and provides about the best analogy of the recent healthcare legislation (ObamaCare) of any I have seen to date. It is reproduced below in its entirety:

I was in my neighborhood restaurant this morning and was seated behind a group of jubilant individuals celebrating the coming implementation of the health care bill. I could not finish my breakfast.
This is what ensued: They were a diverse group of several races and both sexes. I heard a young man exclaim, “Isn’t Obama like Jesus Christ? I mean, after all, he is healing the sick.”

A young woman enthusiastically proclaimed, “Yeah, and he does it for free. I cannot believe anyone would think that a free market wouldn’t work for health care.”

Another said, “The stupid Republicans want us all to starve to death so they can inherit all of the power. Obama should be made a Saint for what he did for those of us less fortunate.”

At this, I had more than enough. I arose from my seat, mustering all the restraint I could find, and approached their table. “Please excuse me; may I impose upon you for one moment?”

They smiled and welcomed me to the conversation. I stood at the end of their table, smiled as best I could and began an experiment. “I would like to give one of you my house. It will cost you no money and I will pay all of the expenses and taxes for as long as you live there. Anyone interested?”

They looked at each other in astonishment. “Why would you do something like that?” asked a young man, “There isn’t anything for free in this world.” They began to laugh at me, as they did not realize this man had just made my point.

“I am serious, I will give you my house for free, no money whatsoever. Anyone interested?”

In unison, a resounding “Yeah” fills the room. “Since there are too many of you, I will have to make a choice as to who receives this money-free bargain.”

I noticed an elderly couple was paying attention to the spectacle unfolding before their eyes, the old man shaking his head in apparent disgust. “I tell you what; I will give it to the one of you most willing to obey my rules.” Again, they looked at one another, an expression of bewilderment on their faces.

The perky young woman asked, “What are the rules?”

I smiled and said, “I don’t know. I have not yet defined them. However, it is a free home that I offer you.”

They giggled amongst themselves, the youngest of which said, “What an old coot. He must be crazy to give away his home. Go take your meds, old man.”

I smiled and leaned into the table a bit further. “I am serious, this is a legitimate offer.” They gaped at me for a moment.

“I’ll take it you old fool. Where are the keys?” boasted the youngest among them.

“Then I presume you accept ALL of my terms then?” I asked. The elderly couple seemed amused and entertained as they watched from the privacy of their table.

“Oh yeah! Where do I sign up?”

I took a napkin and wrote, “I give this man my home, without the burden of financial obligation, so long as he accepts and abides by the terms that I shall set forth upon consummation of this transaction.” I signed it and handed it to the young man who eagerly scratched out his signature.

“Where are the keys to my new house?” he asked in a mocking tone of voice. All eyes were upon us as I stepped back from the table, pulling the keys from pocket and dangling them before the excited new homeowner.

“Now that we have entered into this binding contract, witnessed by all of your friends, I have decided upon the conditions you are obligated to adhere to from this point forward.
– You may only live in the house for one hour a day.
– You will not use anything inside of the home.
– You will obey me without question or resistance.
– I expect complete loyalty and admiration for this gift I bestow upon you.
– You will accept my commands and wishes with enthusiasm, no matter the nature.
– Your morals and principles shall be as mine.
– You will vote as I do, think as I do and do it with blind faith. These are my terms. Here are your keys.”

I reached the keys forward and the young man looked at me dumbfounded. “Are you out of your mind? Who would ever agree to those ridiculous terms?” the young man appeared irritated.

“You did when you signed this contract before reading it, understanding it and with the full knowledge that I would provide my conditions only after you committed to the agreement.”

The elderly man chuckled as his wife tried to restrain him. I was looking at a now silenced and bewildered group of people. “You can shove that stupid deal up your a** old man. I want no part of it!” exclaimed the now infuriated young man.

“You have committed to the contract, as witnessed by all of your friends,” I said. “You cannot get out of the deal unless I agree to it. I do not intend to let you free now that I have you ensnared. I am the power you agreed to. I am the one you blindly and without thought chose to enslave yourself to. In short, I am your Master.” At this, the table of celebrating individuals became a unified group against the unfairness of the deal. After a few moments of unrepeatable comments and slurs, I revealed my true intent. “What I did to you is what this administration and Congress did to you with the health care legislation. I easily suckered you in and then revealed the real cost of the bargain. Your folly was in the belief that you can have something you did not earn, and for that which you did not earn, you willingly allowed someone else to think for you. Your failure to research, study and inform yourself permitted reason to escape you. You have entered into a trap from which you cannot flee. Your only chance of freedom is if your new Master gives it to you. A freedom that is given can also be taken away. Therefore, it is not freedom at all.” With that, I tore up the napkin and placed it before the astonished young man. “This is the nature of your new health care legislation.”

I turned away to leave these few in thought and contemplation — and was surprised by applause. The elderly gentleman, who was clearly entertained, shook my hand enthusiastically and said, “Thank you, Sir. These kids don’t understand  Liberty.” He refused to allow me to pay my bill as he said, “You earned this one. It is an honor to pick up the tab.” I shook his hand in thanks, leaving the restaurant somewhat humbled and sensing a glimmer of hope for my beloved country.

Remember… Four boxes keep us free: the soap box, the ballot box, the jury box, and the cartridge box.

“Any man who thinks he can be happy and prosperous by letting the American Government take care of him; better take a closer look at the American Indian.” — Henry Ford

“It’s amazing that people who think we can not afford to pay for doctors, hospitals and medication somehow think that we can afford to pay for doctors, hospitals, medication and a huge government bureaucracy to administer it.” — Thomas Sowell


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Committee Report Says Government is Cause of Drug Shortage

Committee on Oversight and Government Reform Report

Report released June 15, 2012.

According to a report issued June 15th by the Committee on Oversight and Government Reform of the House of Representatives, the widespread shortages of generic injectable medications are due to two main factors. The first is growing market concentration over the past decade, which was accelerated by a provision in the Medicare Modernization Act (MMA). The second is increased FDA enforcement and regulation, which has shut down a substantial amount of manufacturing capacity.

American patients and doctors currently confront an unprecedented shortage of critical drugs. The widespread shortages are causing inferior treatment regimens, interruptions in care, higher health care costs, and even premature death. The drugs in shortage are mostly generic injectable medications, many of which have been on the market for decades. Although the shortages have been attributed to a myriad of factors from a lack of raw materials to increased demand, information obtained by the Committee on Oversight and Government Reform shows that the crisis was largely sparked by actions of the Food and Drug Administration (FDA). The Committee has learned that FDA regulatory activity has effectively shut down 30% of the total manufacturing capacity at four of America’s largest producers of generic injectable medications: Bedford Laboratories, Hospira Pharmaceuticals, Sandoz Pharmaceuticals, and Teva Pharmaceuticals. Of the 219 drugs listed on the American Society of Health System Pharmacists (ASHSP) shortage list as of February 21, 2012, at least 128 – 58% of the drugs on the shortage list – were produced by at least one facility undergoing FDA remediation.

The drug shortage crisis that took off in 2010 began shortly after Margaret Hamburg became FDA Commissioner.

Between 2009, when Margaret Hamburg became FDA Commissioner, and 2010, the number of warning letters sent by the agency increased 42%. Between 2010 and 2011, the number of warning letters sent by the FDA increased an additional 156%. In many cases, warning letters have resulted in companies agreeing to take manufacturing off-line to address FDA criticisms.

Since this time, the FDA has failed to ensure that enforcement and compliance activities are conducted in a manner that does not create unnecessary shortages of critical drugs the report states. In response to FDA prodding, companies producing generic injectable drugs have taken their manufacturing off-line simultaneous to other generic competitors also going off-line. These simultaneous shutdowns diminish the ability of competitors to alleviate the shortages with increased production. Last year, a report from the Assistant Secretary for Planning and Evaluation at HHS acknowledged the risk from shutting down manufacturing lines:

This temporary closure of a large manufacturing facility can also lead to other facilities being unable to meet the increased demand for the drug due to the lack of excess capacity and the pressure of ramping up supply for multiple drugs in other facilities.

Among shuttered manufacturing lines that occurred over the previous two years, the committee’s review did not find any instances where the shutdown was associated with reports of drugs harming customers.

When problems that do not pose an immediate threat to public safety are detected, directing facilities to make targeted improvements under close supervision of the FDA can be a more appropriate response than actions that lead companies to shut down manufacturing lines. While such a response may place inconvenient burdens on the FDA’s bureaucracy, greater use of such a targeted approach would have significantly diminished the public health crisis the country is facing from the abundant number of drug shortages. It is noteworthy, however, that the overall damage inflicted by the FDA’s decisions to shutter manufacturing lines may extend well beyond the current drug shortage crisis. The shortages of generic injectable drugs are only the most visible result thus far of the FDA’s stepped up enforcement activities.

While FDA actions over the past several years are the primary reason for the severity of the drug shortage crisis, the Committee also found that growing market concentration over the past decade laid the groundwork for the crisis. One contributing factor to the growing market concentration is a provision of the Medicare Modernization Act (MMA) which dramatically reduced the prices paid by Medicare for many generic injectable medications, particularly older generics. Manufacturers are reluctant to raise prices above what Medicare reimburses providers who administer them. As a result, the Committee has learned that manufacturers are losing money producing generic injectable oncology drugs. When manufacturers lose money on a product, they are incentivized to switch production away from that product. Therefore, it is not surprising that many of the drugs on the shortage list are generic oncology drugs. A recent economics research paper found that drugs more affected by the MMA are much more likely to be in short supply than drugs less affected by the MMA.

Group purchasing organizations (GPOs) have also contributed to a market structure that makes shortages more likely. GPOs, which emerged as a mechanism for providers to increase their buying power, assemble large networks of hospitals and clinics who agree to purchase drugs through a GPO. GPO contracts, which are structured to take advantage of large economies of scale in drug production, result in only a few large manufacturers producing each generic injectable medication. Because of intense manufacturer competition to win GPO contracts, prices are driven down – the intended goal. As a consequence, however, companies that cannot produce a drug at large enough output levels to take advantage of the economies of scale – often because they lack the guaranteed source of demand that GPOs provide – will stop producing the drug or will neglect to enter the market.

Largely because of GPO contracting and the MMA’s impact on changing Medicare’s reimbursement formula for injectable medications, individual generic injectable drugs are being produced by at most three companies. In 2010, 90% of generic injectable oncology drugs were produced by three or fewer manufacturers. In such a tight oligopoly, the temporary closure of a significant number of the production lines in one or two manufacturers’ facilities makes shortages much more likely.

Although the drug shortage crisis is likely to continue until manufacturers bring their facilities back on line, policymakers can take action to guard against future crises. Most importantly, a common sense regulatory approach must be restored at the FDA. Agency protocols should be revised so that the agency is required to consider the implications of its actions on the nation’s supply of critical drugs. In addition, the drug shortage crisis has shed greater transparency on the dysfunctional price system that governs generic injectable medications. To improve the price mechanism, Congress should reform the way that Medicare pays for drugs so the program’s reimbursements better reflect actual supply and demand conditions in the market. In the meantime, proposals to allow drug companies to share information about each other’s manufacturing capability and product availability may have merit because of the extraordinary circumstances of the present crisis. However, this type of information sharing potentially places consumers at risk of collusion by the large manufacturers.

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The Supreme Court’s Decision and its Impact on Health Care Reform

Now the fate of the Affordable Care Act rests with the highest court in the land. Observers have analyzed the questions asked by the justices in an attempt to read their respective minds. How are they leaning? Were the questions for political benefit or a real attempt to delve into the implications of the legislation with respect to the U.S. Constitution?

The nine men and women who serve as justices of the Supreme Court of the United States must wrestle with what many have called President Barack Obama’s signature legislation overhauling the health care system in the wake of the firestorm stirred by the President’s comments regarding the court’s authority to overturn federal laws.

Speculators suggest that they have a range of options, from upholding the law to striking it down in its entirety. There are even some who suggest the court could avoid deciding the law’s constitutionality at all, while most opine that scenario is unlikely based on last week’s arguments.

Here are some of the potential outcomes, and what some believe the implications would be of each decision…

Uphold the law

The Court could uphold the law and rule that Congress was within its authority to require most people to have health insurance or pay a penalty. Such a decision would put an end to the legal fight and allow the administration to proceed with implementation of its provisions over the next few years, including the insurance requirement, an expansion of Medicaid and a ban on private insurers’ denying coverage to people with pre-existing health problems.

Outcome. This decision would not end the political debate, which would most likely continue as Republican candidates call for repeal of the law.

Strike the entire law

The court could rule that the entire law is unconstitutional.

Outcome. An expensive new federal entitlement would be eliminated before it has gained much momentum among the more than 30 million beneficiaries who were to receive health insurance coverage because of the law. The biggest fallout from such a decision would be the nearly 2.5 million young adults under age 26 who were allowed to stay on their parents’ insurance.

Thus, the escalating costs of health care and the more than 50 million uninsured and under-insured people, according to the latest estimates, would be an ongoing cause for concern and political debate thrown back into the lap of a divided Congress.

Strike the mandate, leave the rest

The court could rule that the individual insurance requirement is unconstitutional, but that the rest of the Affordable Care Act should remain intact.

Outcome. This decision has been argued to be the underpinning of the legislation. The costs associated with implementation would grow almost exponentially. Individually purchased private health insurance would rise dramatically, since millions of middle-class people would still be entitled to government subsidized premiums under the law’s remaining provisions. Insurance companies would be required to accept people with pre-existing medical problems, no longer allowed to cherry-pick the healthy to keep costs down. They would also be prohibited from imposing higher premiums on people in poor health and limited in what they could charge older adults. Consequently, the burden on the Federal budget would be significantly increased.

If the individual mandate is struck, the law’s Medicaid expansion would still cover millions more low-income people, mainly childless adults, and many other mandates would also remain. Beginning in 2014, medium-sized and large employers would be hit with fines for not providing coverage to their workers.

Ten million to 15 million uninsured people who would have gotten coverage under the law could be left out. If that happens, premiums in the individual health insurance market would jump anywhere from 10 percent to 30 percent, according to various forecasts from economists.

Experts debate whether or not such a cost spike would trigger the collapse of the insurance market for individuals and small businesses – or just make coverage even more expensive than it already is.

Strike the mandate and pre-existing conditions clauses

The court rules that the individual mandate is unconstitutional and that those sections of the law requiring insurance companies to cover people regardless of medical problems and limiting what premiums they can charge the elderly also violates the Constitution.

Outcome. Here again, many less people would receive benefits, but the financial impact on the health insurance industry would be much less severe. Insurers could still screen out people with a history of medical problems, such as diabetics or cancer survivors and reducing the likelihood of  premium increases. And one of the concerns the law was intended to fix would be thwarted leaving consumers with no assurance that they could get health insurance when they need it.

The Administration’s lawyers argued that the insurance requirement goes hand in hand with the coverage guarantee and cap on premiums, and have asked the court to get rid of both if it finds the mandate to be unconstitutional. Currently, those people in their late 50’s and early 60’s can face premiums as much as six or seven times higher than those charged to 20-year-olds. The coverage guarantee and cap on premiums provision in the Affordable Care Act limits insurers to charging those older adults no more than three times what they charge younger ones, but it would be eliminated if the Court followed the Administration’s lawyers argument.

Deny expansion of the Medicaid program

The court could rule that only the expansion of the Medicaid program oversteps the federal government’s constitutional power.

Outcome. Eliminating the expansion of the Medicaid program would severely limit the law’s impact because roughly half of the more than 30 million people expected to gain health insurance under the law would access it through the expansion of Medicaid, the federal-state health insurance program for low-income people.

As the law currently stands, people earning up to 138 percent of the federal poverty level would be effectively covered under Medicaid. That income level is currently at about $15,400 for an individual, $30,650 for a family of four. Most of those who would be added to the Medicaid rolls are low-income adults without children. While a significant  number of those low-income people might still be eligible for government-subsidized private insurance under other provisions of the law, the cost of such private coverage will probably be more expensive for taxpayers to subsidize than Medicaid. States suing to overturn the federal law argue that the Medicaid expansion comes with so many strings attached it amounts to an unconstitutional power grab by Washington, reaching directly into the wallets of state taxpayers.

The administration argued that the federal government is paying all of the initial cost of the expansion and 90 percent in perpetuity, well above what Washington contributes for regular Medicaid. Moreover, when Congress created Medicaid in 1965 it also served notice on the states that program rules could change in the future. This is only the latest of many such changes.

The Supreme Court took on this issue even though none of the district or appeals courts that heard health care lawsuits had any problem with the Medicaid expansion.

Agree to wait and see

The court could also agree with the federal appeals court in Richmond, Va., which  ruled that the challenge to the insurance requirement has to wait until people start paying the penalty for not purchasing insurance, thus the court could decide not to decide on the big issues.

Outcome. Based on what the justices said during the arguments, this would be the least likely, and least conclusive outcome in the case. The appeals court ruled that it was bound by the federal Anti-Injunction Act, which is intended to facilitate tax collections and keep the government operating. That law says federal courts may not hear challenges to taxes, or anything that looks like a tax, until after the taxes are paid. This course involving the court’s consideration of a relatively technical issue did not seem a preferred option by any of the justices. Nonetheless, it represents an “out”  if the justices struggle  to reach a decision on any of the other options.

This ruling would allow the administration to proceed with the enactment of the law and force postponement of any subsequent challenge until more of the benefits are being received. Republicans might have more ammunition to press for repeal of the law in the meantime.

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Huge subsidy funding discrepancy in President’s budget proposal

It comes as no surprise that the Obama Administration’s cost estimates for a key provision of the Affordable Care Act have increased by $111 billion compared to last year’s budget. When House Ways and Means Chairman Dave Camp asked Health and Human Services Secretary Kathleen Sebelius about the discrepancy, during a hearing, Sebelius said she didn’t know the reason. That prompted a formal inquiry to the administration, demanding that the administration explain what happened – and suggesting the law’s skeptics were right all along. Camp (R-MI) asked for an explanation, “This staggering increase … cannot be explained by legislative changes or new economic assumptions, and therefore must reflect substantial changes in underlying assumptions regarding … costs,”

The subsidies that will be provided under the health care law to help the middle class buy private coverage in new state insurance markets beginning in 2014 are the main concern. In the Administration’s budget last year, these subsidies were estimated to cost $367 billion from 2014-2021. However, the current year’s budget estimates these costs to be $478 billion over the same period, or an increase of 30 percent. In a letter to Treasury Secretary Tim Geithner, Camp asked the Administration whether the change might be a result of higher than expected premiums or a loss of private insurance.

Administration officials said part of the increase is a result of legislation that amended how modified adjusted gross income is calculated, which will shift some people from Medicaid to the health insurance exchanges. The rest is due to technical changes in Treasury Department assumptions on issues such as distribution of income in America.

After the Affordable Care Act became law, the administration became aware of a flaw in the language of the bill. Some working- and middle-class people, making up to four times the poverty rate, could have qualified for Medicaid. Congress responded by amending the law, to redefine who would be eligible for Medicaid. As a result of the Congressional “fix,” some people who would have gotten their insurance through Medicaid will now get their health insurance through the new exchanges. They will also be eligible for subsidies, depending on their incomes resulting in higher overall costs of the subsidies.

I wonder if that little “hiccup” is only the tip of the iceberg? Are there other surprises that escaped the legislators as they hurried to push the bill through? How many other surprises will be found as the true wrinkles of the legislation unfold? Would it have made sense to more carefully consider all the ramifications before trying to hurry the legislation through to beat any changes brought about by the Congressional elections?

While the cost of the subsidies will now increase as a result of this “fix” more people will be getting insurance through the exchanges. Meanwhile, it is contended that the cost of Medicaid will decline, because fewer people will be getting coverage through that program. Overall, the administration now projects the ten-year Medicaid cost to decline by $272 billion.

Apparently, more money will now be spent to provide private insurance through Obamacare. This is expected to be offset by reductions in Medicaid spending through Obamacare. It is argued that less will be spent in additional subsidies than the anticipated savings in Medicaid, thus, suggesting the overall cost of Obamacare will be reduced from its previous projection of a year ago.

However, the Treasury Department has not yet delivered a formal response to Rep. Camp. Furthermore, the Congressional Budget Office will be revising its own estimates of the Affordable Care Act, and will more than likely produce different numbers than the administration has, because they use different technical and economic assumptions. Nothing is more certain than that figures do not lie, but liars can figure!

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Congress fails once again to fix the SGR formula

Once again, Congress missed an opportunity to resolve its annual dilemma wrangling over how to correct the continuing problem of the Medicare reimbursement cliff for physicians created by the Sustainable Growth Rate (SGR) formula. Almost since Congress first pursued legislation to attempt to restrain the escalating costs of health care, the cure has been worse than the disease.

On February 22, President Obama signed a bill from Congress providing a 10-month patch to the flawed sustainable growth rate (SGR) formula stopping a 27.4 percent cut in Medicare payments to physicians on March 1. It was argued by lobbyists that had the cut gone into effect, it would have negatively impacted seniors’ access to care and choice of physician. This agreement was part of a larger legislative package tied to the extension of the payroll tax cut and unemployment benefits. It is the 11th short term patch to the SGR in the last 10 years.

Unfortunately, this latest “fix” is appropriately called a “patch” because it is only good for the next ten months. Shortly after the November national elections, a lame duck Congress will again be confronted with a mandated cut estimated to be 32% in the Medicare physician reimbursement rate effective January 1, 2013. This cut is mandatory because the legislation that established the SGR formula in the first place was not permanently repealed. Instead, Congress passed a temporary measure to fund the differential for the next ten months with funds from cuts in other areas of the current fiscal budget.

CMS is required to issue a final rule that reflects current law. Under current law, providers will face steep across-the-board reductions in payment rates, based on a formula– the Sustainable Growth Rate (SGR) – that was adopted in the Balanced Budget Act of 1997. Without a change in the law from Congress, Medicare payment rates to providers paid under the MPFS would have been reduced by 27.4 percent for services in CY 2012—less than the 29.5 percent reduction that CMS had estimated in March of 2011, because Medicare cost growth has been lower than expected. This is the eleventh time the SGR formula has required a payment cut, although the cuts have been averted through legislation in all but CY 2002. Each year, Congress vows to fix the SGR and ensure that these payment cuts do not take effect, yet as one can see, the only Congressional action has been an annual delaying of the cut.

Physician reimbursement has undergone several iterations since 1965. Initially, physicians were compensated by Medicare based on the physician’s charges, and were allowed to bill Medicare beneficiaries for the amount in excess of Medicare’s reimbursement. Then, in 1975, annual increases in physician fees were limited by the Medicare Economic Index (MEI). The MEI was designed to measure changes in costs of physician’s time and operating expenses, adjusted for changes in physician productivity. From 1984 to 1991, the yearly change in fees was determined by legislation. This was done because physician fees were rising faster than projected.

The Omnibus Budget Reconciliation Act of 1989 made several changes to physician payments under Medicare. The first was the introduction of the Medicare Fee Schedule (MFS), which took effect in 1992. Medicare non-providers were limited in the amount in excess of Medicare’s reimbursement that they could bill Medicare beneficiaries. The Medicare Volume Performance Standards (MVPS) were also introduced as a cost-control mechanism.1

On January 1, 1992, Medicare introduced the Medicare Fee Schedule (MFS), a list of about 7,000 services for which Medicare can be billed. Pricing for services was determined using the Resource-Based Relative Value Scale (RBRVS) with three Relative Value Units (RVUs) values being the primary price determinants. These three RVUs for a procedure are each geographically weighted and the weighted RVU value is multiplied by a global Conversion Factor (CF), yielding a price in dollars. The RVUs are decided by a private group of (mostly specialist) physicians—the American Medical Association’s Specialty Society Relative Value Scale Update Committee (RUC).2

From 1992 to 1997, adjustments to physician payments were adjusted using the MEI and the MVPS, which essentially tried to compensate for the increasing volume of services provided by physicians by decreasing their reimbursement per service.

In 1998, Congress replaced the VPS with the Sustainable Growth Rate (SGR). This was done because of highly variable payment rates under the MVPS. The SGR was an attempt to control spending by setting yearly and cumulative spending targets. If actual spending for a given year exceeded the spending target for that year, reimbursement rates were to be adjusted downward by decreasing the Conversion Factor (CF) for RBRVS RVUs.

Since 2002, actual Medicare Part B expenditures have exceeded projections.

In 2002, payment rates were cut by 4.8%. In 2003, payment rates were scheduled to be reduced by 4.4%, but in the Consolidated Appropriation Resolution of 2003 (P.L. 108-7), Congress instead raised the cumulative SGR target, allowing payments for physician services to increase 1.6%. The payment rates were again due to be reduced in 2004 and 2005, and another bill, the Medicare Modernization Act (P.L. 108-173), increased payments 1.5% for those two years.

Again, in 2006, the SGR mechanism was set to decrease physician payments by 4.4%. (This number results from a 7% decrease in physician payments times a 2.8% inflation adjustment increase.) Once more, Congress overrode this decrease in the Deficit Reduction Act (P.L. 109-362), and held physician payments in 2006 at their 2005 levels. Similarly, another congressional act held 2007 payments at their 2006 levels, and HR 6331 held 2008 physician payments to their 2007 levels, and provided for a 1.1% increase in physician payments in 2009. Barring further congressional intervention, the SGR is due to decrease physician payments from 25% to 35% over the next several years.

MFS has been criticized for not paying doctors enough because of the low conversion factor. By adjustments to the MFS conversion factor, it is possible to make global adjustments in payments to all doctors.3

On November 1, 2011, CMS issued a final rule with comment period that updated payment policies and rates for physicians and non-physician practitioners (NPPs) for services paid under the Medicare Physician Fee Schedule (MPFS) in calendar year (CY) 2012. More than 1 million providers of vital health services to Medicare beneficiaries – including physicians, limited license practitioners such as podiatrists, and NPPs such as nurse practitioners and physical therapists – are paid under the MPFS. CMS projects that total payments under the MPFS in CY 2012 will be approximately $80 billion.4

In the CY 2012 final rule, CMS is expanding the potentially misvalued code initiative, an effort to ensure Medicare is paying accurately for physician services and more closely managing the payment system. This year, CMS is focusing on the codes billed by physicians in each specialty that result in the highest Medicare expenditures under the MPFS to determine whether these codes are overvalued. In the past, CMS has targeted specific codes for review that may have affected a few procedural specialties like cardiology, radiology or nuclear medicine but has not taken a look at the highest expenditure codes across all specialties. This effort results in increased payments for primary care services that have historically been undervalued by the fee schedule.

1 McCormick, Lauren A., Burge, Russel T., “Diffusion of Medicare’s RBRVS and related physician payment policies – resource-based relative value scale – Medicare Payment Systems: Moving Toward the Future,” health care Financing Review. Winter, 1994.

2 Reinhardt, Uwe. “The Little-Known Decision-Makers for Medicare Physicans Fees,” The New York Times (December 10, 2010). Retrieved 2011-10-12.

3 “Medicare’s Physician Payment Rates and the Sustainable Growth Rate,” CBO TESTIMONY Statement of Donald B. Marron, Acting Director. July 25, 2006 (

4 CMS issued press release entitled, “CMS announces policy, payment rate changes for the Physician Fee Schedule in 2012,” November 1, 2011.

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Defensive medicine among orthopedic surgeons costs US $2 billion

In an article published in the February issue of the American Journal of Orthopedics, Vanderbilt University Medical Center researchers estimate that U.S. orthopedic surgeons create approximately $2 billion per year in unnecessary health care costs associated with orthopedic care due to the practice of defensive medicine. The practice of ordering additional but unnecessary tests and diagnostic procedures that may later help exonerate physicians from accusations of malpractice result in no significant benefit to patients’ care. The study suggests unnecessary costs associated with the practice of defensive medicine play a substantial role in the nation’s rising cost of health care.

The findings are from a national survey of 2,000 orthopedic surgeons selected randomly through a list provided by the American Academy of Orthopedic Surgeons. Respondents were located in all 50 states and practice in a variety of settings. Of respondents, 96 percent report practicing defensive medicine, which accounts for 24 percent of all imaging studies, laboratory tests, consultations and hospital admissions among the survey’s cohort.

“Currently, our nation’s expenditure on health care is 20 percent of GDP [gross domestic product]. This figure really bothers us and served as motivation to conduct this survey,” said Manish Sethi, M.D., assistant professor of Orthopedic Surgery and Rehabilitation, and lead author of the study. “If defensive medicine can be curbed, we will see a dramatic reduction in health care costs, and our research makes this case.”

With a 61 percent response rate, the survey gathered data on how many medical tests, such as x-rays or ultrasounds, a physician ordered in a month and how many of those were ordered in a defensive manner. Using the American Medical Association’s CPT (Current Procedural Terminology) billing codes as a reference point for costs, researchers calculated the average cost of each imaging test then tabulated an average cost per month.

On average, orthopedic surgeons spent $8,485 per month on the practice of defensive medicine, a figure which equals nearly a quarter of their total practice costs. Per year, the cost for defensive medicine averages $101,820 per respondent. When this figure is multiplied by the 20,400 orthopaedic surgeons practicing in the U.S., the average cost per year for defensive medicine procedures among this group totals $2,077,128,000.

Ordering excess tests or procedures is known as positive defensive medicine. Researchers also examined the practice of negative defensive medicine, or the practice by physicians of avoiding high-risk patients or procedures in order to limit liability.

Avoiding high risk patients: negative defensive medicine

In the past five years, 70 percent of respondents reported reducing the number of high-risk patients they treat, while 84 percent reduced or eliminated performing high-risk services and procedures.

Write-in examples of defensive medicine included closing a practice to become a consultant, no longer seeing patients in an emergency room, and not operating on patients with diabetes or heart problems.

“It becomes an access of care issue,” said Alex Jahangir, M.D., assistant professor of Orthopedic Surgery and Rehabilitation, and a study author. “Patients are now losing access to physicians if they happen to be a diabetic, obese, or a smoker with heart problems. Their care will be delayed; the costs will increase because they have to be flown to a tertiary center. Negative defensive medicine is a big part of the problem.”

Sethi was previously involved in a similar study of orthopedic surgeons in Massachusetts that found comparable results, but this is the first to demonstrate defensive medicine practices are common nationwide.

Sethi and Jahangir propose that reforms should focus more on evidence-based medicine than liability policies.

“We believe an evidence-based approach is the best approach,” Sethi said. “If we can develop standards of practice that are accepted across the nation, physicians won’t need to order these additional x-rays and MRIs to protect themselves, and we know costs will go down.”

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Catholic bishops call HHS new rule “literally unconscionable”

In August 2011, the Department of Health and Human Services issued an interim final rule  that would require most health insurance plans to cover preventive services for women including recommended contraceptive services without charging a co-pay, co-insurance or a deductible. The rule allows certain non-profit religious employers that offer insurance to their employees the choice of whether or not to cover contraceptive services.

In a statement released Friday, January 20, Kathleen Sebelius, Secretary of Health and Human Services said, “After evaluating comments, we have decided to add an additional element to the final rule. Nonprofit employers who, based on religious beliefs, do not
currently provide contraceptive coverage in their insurance plan, will be provided an additional year, until August 1, 2013, to comply with the new law. Employers wishing to take advantage of the additional year must certify that they qualify for the delayed implementation. This additional year will allow these organizations more time and flexibility to adapt to this new rule. We intend to require employers that do not offer coverage of contraceptive services to provide notice to employees, which will also state that
contraceptive services are available at sites such as community health centers, public clinics, and hospitals with income-based support. We will continue to work closely with religious groups during this transitional period to discuss their concerns.”

The announcement stirred up some religious groups, most notably the Catholic bishops of the United States. They called the decision by the Obama Administration “literally unconscionable”. They said that this announcement means that the mandate and its very
narrow exemption will not change at all; instead there will only be a delay in enforcement against some employers.

“In effect, the president is saying we have a year to figure out how to violate our  consciences,” said Cardinal-designate Timothy M. Dolan, archbishop of New York and president of the U.S. Conference of Catholic Bishops.

“To force American citizens to choose between violating their consciences and forgoing their healthcare is literally unconscionable,” the cardinal-designate said. “It is as much an
attack on access to health care as on religious freedom. Historically, this represents a challenge and a compromise of our religious liberty.”

Sebelius said that the final rule on preventive health services will ensure that women with health insurance coverage will have access to the full range of the Institute of Medicine’s recommended preventive services, including all FDA-approved forms of contraception. “Women will not have to forego these services because of expensive co-pays or deductibles, or because an insurance plan doesn’t include contraceptive services,” she said. “This
rule is consistent with the laws in a majority of states which already require contraception coverage in health plans, and includes the exemption in the interim final rule allowing certain religious organizations not to provide contraception coverage. Beginning August
1, 2012, most new and renewed health plans will be required to cover these services without cost sharing for women across the country.”

“The government should not force Americans to act as if pregnancy is a disease to be prevented at all costs,” said Cardinal-designate Dolan.

At issue, the U.S. bishops and other religious leaders insist, is the survival of a cornerstone constitutionally protected freedom that ensures respect for the conscience of Catholics and all other Americans.

In her released statement, Sebelius said, “Scientists have abundant evidence that birth control has significant health benefits for women and their families, it is documented to significantly reduce health costs, and is the most commonly taken drug in America
by young and middle-aged women. This rule will provide women with greater access to contraception by requiring coverage and by prohibiting cost sharing.”

“This is nothing less than a direct attack on religion and First Amendment rights,” said Franciscan Sister Jane Marie Klein, chairperson of the board at Franciscan Alliance, Inc., a
system of 13 Catholic hospitals. “I have hundreds of employees who will be upset and confused by this edict. I cannot understand it at all.”

Daughter of Charity Sister Carol Keehan, president and chief executive officer of the Catholic Health Association of the United States, voiced disappointment with the decision. Catholic hospitals serve one out of six people who seek hospital care annually.

“This was a missed opportunity to be clear on appropriate conscience protection,” Sister Keehan said.

Cardinal-designate Dolan urged that the HHS mandate be overturned. “The Obama administration has now drawn an unprecedented line in the sand,” he said. “The Catholic bishops are committed to working with our fellow Americans to reform the law and change
this unjust regulation. We will continue to study all the implications of this troubling decision.”

Sebelius said, “This decision was made after very careful consideration, including the important concerns some have raised about religious liberty. I believe this proposal strikes the appropriate balance between respecting religious freedom and increasing access to important preventive services. The administration remains fully committed to its partnerships with faith-based organizations, which promote healthy communities and
serve the common good. And this final rule will have no impact on the protections that existing conscience laws and regulations give to health care providers.”

Detroit Archbishop Allen H. Vigneron said,During the same week we commemorated
the life, ministry, and message of Dr. Martin Luther King Jr. and his advancement of civil rights in this country, the Federal Government took the unprecedented step to affirm its discrimination against Americans exercising their right of conscience. With its edict on
contraception and sterilization coverage in all health insurance plans, the Department of Health and Human Services is forcing insurers and purchasers to choose whether or not to violate their moral and religious beliefs. The inalienable rights guaranteed in our country’s founding documents are being trampled. Where is the ‘liberty’ in a decision to intrude on freedom of conscience? The Constitution speaks of ‘freedom of religion,’ not ‘freedom from

Archbishop Vigneron added, “Lawmakers in Washington need to step up, step in, and protect the rights of their fellow citizens from a government mandate that is truly unconscionable. This fight against the Federal Government’s over-reaching exercise of its power is everybody’s fight. As Pope Benedict reminded us just days ago, as citizens of the United States, we Catholics serve the whole nation by our witness to our moral convictions and our defense of the liberties that will always be ours by right, not by the permission of the government.”

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Affordable Health Care for Baby-Boomers: At What Price?

On May 13, 2011, the Medicare Trustees Report was released showing that while Medicare remains solvent longer than expected prior to passage of the Affordable Care Act, challenges remain for securing the long term financial health of the Medicare program. Medicare’s Hospital Insurance (HI) Trust Fund is now projected to remain solvent until 2024. The trustees state in their report that without the reforms in the Affordable Care Act, the Medicare HI Trust Fund would expire in just five years – in 2016. Their report shows these reforms added eight years of solvency.

The Medicare Trustees are Treasury Secretary and Managing Trustee Timothy F. Geithner, Health and Human Services Secretary Kathleen Sebelius, Labor Secretary Hilda L. Solis, and Social Security Commissioner Michael J. Astrue. The two public representatives appointed by the President and confirmed by the Senate, are Charles P. Blahous III and Robert D. Reischauer began serving on September 17, 2010. CMS Administrator Berwick is designated as Secretary of the Board.

Baby-Boomers Delaying Retirement

Meanwhile, according to a new study released by the Bankers Life and Casualty Company Center for a Secure RetirementSM (CSR), a majority (73 percent) of our country’s middle-income Baby Boomers are rethinking their retirement timing due to the recent economic crisis and of those, 79 percent are delaying their retirement by an average of five years.

The study cites several factors contributing to this shift in retirement age and timing for the middle-income Baby Boom generation. According to the study, 71 percent worry about outliving their money once they retire, 68 percent have experienced a decline in the value of their retirement accounts within the past three years and more than half (55 percent) have saved less than $100,000.

Baby-Boomers Are Living Longer

Due in part to advances in health care treatment technology, Baby-Boomers are living longer. The newly released 2011 Medco Drug Trend Report projects that expensive new cancer drugs treating increasing numbers of patients could drive cancer drug spending by as much as 15 percent a year through 2013. While the incidence of some types of cancers may be decreasing, with better detection the overall numbers of cancers reported in an aging population has increased significantly. Due to advanced treatment, the number of U.S. cancer survivors is expected to increase by more than 30 percent – from 13.8 million in 2010 to 18 million by 2020.

Oncology drugs will likely rise to the second or third largest trend-driving category by 2015, following only diabetes and central nervous system (CNS) treatments, according to the newly released 2011 Medco Drug Trend Report. With the use of many newly introduced specialty drugs reaching market in recent years, oncology drug price inflation surged to 11.5 percent during 2010. More than 90 percent of anti-cancer drugs approved since 2004 cost more than $20,000 for a 12-week course of therapy, according to the Journal of the National Cancer Institute.

Rapid advancement in the area of treatment particularly in oncology has had the effect of dampening, if not completely defeating, the opportunity for generic substitute drugs to help offset these rising costs. “New cancer drugs reaching the market are expected to double during the next several years,” said Dr. Glen Stettin, Medco’s chief medical officer. “Early diagnosis, evidence-based treatment and enhanced coordinated care have essentially turned some forms of the condition into chronic illnesses that can be managed longer-term. Continued innovation, including companion diagnostic or pharmacogenomic testing, can help ensure the right person is getting the right drug at the proper dose and reduce waste.”

Many of these newer treatments are oral medications or can be self administered, changing the dynamic of cancer care delivery toward the home, rather than in physician’s office or infusion center. This dynamic shows no signs of abating.

Factors Leading to Treatment Abandonment

Concurrently, another study based on an analysis conducted by Avalere Health LLC using pharmacy transaction data over a two-year period from 2007 to 2009, found that ten percent of cancer patients failed to fill their initial prescriptions for oral anti-cancer drugs because of high cost-sharing and higher prescription activity. “Our study shows that many cancer patients are abandoning the medicine they need,” said Lauren Barnes, vice president, Avalere Health. “With 45.5 percent of Medicare patients in our sample facing cost-sharing greater than $500 for their first anti-cancer drug, this is a Medicare quality issue of the first order.”

“Cost-sharing clearly has an impact on whether a patient initiates his or her oral anti-cancer medicine, with the abandonment rate rising as the cost-sharing increases,” said Michael Johnsrud, PhD, one of the study authors and a senior vice president at Avalere Health. “Importantly, claims for cost-sharing over $500 have more than four times higher an abandonment rate than claims of cost-sharing with less than $100. This demonstrates that patients are confronted with potential barriers in accessing anti-cancer medications.”

The number of concurrent prescriptions also had an impact on abandonment of an oncolytic. Patients with more than five claims for non-cancer medicines in the previous month had an abandonment rate of 12 percent, as compared to nine percent for patients with no claims in the previous month.

Insurers Under Scrutiny

The Department of Health and Human Services (HHS) issued a final rule which requires independent experts to scrutinize any proposed increase of 10-percent for most individual and small group health insurance plans. This final regulation comes at a time when health insurance companies have reported some of their highest profits in years. One cause for these profits according to the HHS release is that actual medical costs are growing more slowly than what insurance companies projected when they set their 2011 rates last year, but many of the rates consumers and small employers pay today don’t reflect these lower costs.

States will have the primary responsibility for reviewing rate increases. While most states will take on this responsibility, HHS will serve in a backup role in states that don’t have the resources or authority to review rates. HHS has awarded $44 million in Affordable Care Act grants to states to help strengthen their oversight capabilities.

It is the opinion of HHS that combined with other important protections from the Affordable Care Act, these new rules will help lower insurance costs by moderating premium hikes and provide consumers with greater value for their premium dollar.

Translating the Rhetoric

What does all this mean for the Baby-Boomer? It means that Medicare is still going to run out of funds by 2024, based on current optimistic projections. It means that Baby-Boomers will be delaying retirement which is fortunate because they are living longer. In addition, medical advancements have enabled them to live longer, thus becoming more likely to contract debilitating diseases that will result in treatment costs that are escalating at a rate far exceeding the rate of inflation. It means that to manage the increased scrutiny of rate increases, the insurers who provide medical coverage (including Medicare) are implementing cost-sharing strategies which are ultimately driving more patients to abandon treatment.

The bottom line? There is NO FREE LUNCH! You cannot increase the number of people for whom treatment costs will be covered, while at the same time lowering total costs when those people live longer and contract diseases they never would have contracted except for the fact that they are now living long enough to get them. At what point do you recognize that health care is an individual responsibility, not a birth right?

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Is Rationing of Health Care Ethical?

A recent New York Times article entitled “New Kidney Transplant Policy Would Favor Younger Patients” references a proposal being considered by the nation’s organ transplant network to allocate organs in an alternative manner than the present first-come-first-served system. The article indicates it is intended to provide better matches between the life expectancies of recipients and the functional life of donated kidneys.

The proposal was first reported in the Washington Post. A 30-member Kidney Transplantation Committee, chaired by Kenneth Andreoni, MD an associate professor of surgery at Ohio State University, offered the proposal as part of its review of the system for the United Network for Organ Sharing (UNOS), a Richmond-based private nonprofit group contracted by the federal government to coordinate organ allocation. “It’s an effort to get the most out of a scarce resource,” Andreoni said.

The current organ allocation system, which dates to 1986, was initially based on giving kidneys to the patients who matched the organs best, but in its present form takes a first-come, first-served approach giving priority to patients who have waited the longest.

At issue in this current proposal is the dilemma that elderly recipients can get organs from much younger donors whose kidneys could have provided far more years of healthy life to younger, healthier patients. By the same token, younger patients could receive older or less-healthy organs that might be more likely to wear out sooner, forcing them back onto the transplant list in a few years.

According to some ethicists, this approach, if adopted, could have implications for other decisions about how to allocate scarce medical resources, such as expensive cancer drugs and ventilators during hurricanes and other emergencies.

The idea brings to mind the time when kidney dialysis first emerged as a treatment option for patients with kidney failure. Since, at the time, there were insufficient devices to provide the treatment for all patients; panels were organized to determine which patients would receive the new therapy. These panels became known as “death panels” as they made decisions that in effect decided who lived and who died.

Any time there is a limited resource that is insufficient to meet the demand, some form of rationing is inevitable. The ethical dilemma then becomes who decides what criteria will be employed to make the life or death determination. No matter how the system is defined, there will be those who believe the solution is unfair. The problem is as much ideological as it is ethical.

In a free market system, supply and demand determine how goods and services are rationed. A market price for the good or service is established and fluctuates based on the supply and demand variables. Those who have the ability to pay the market price, are able to acquire the good or service. When it comes to the matter of one’s health, the notion of “fairness” intercedes because ideologically, good health is often perceived as a “right” for all rather than a benefit of the wealthy.

So again, it becomes the debate over the so-called “haves” and “have-nots.” It is not a debate over whether rationing is occurring, since it most certainly is occurring. Instead, the debate is over the criteria that are proposed for deciding the allocation of the organs, and how that will impact the decisions regarding the rationing of other aspects of health care.

In the case of this particular issue, you have until April 1 to comment on the idea, which the committee said would make the kidney system more similar to those used to allocate livers, hearts and lungs. The committee will take those comments into account before formally proposing the specific changes, which will be open to public comment again before going to the UNOS board of directors. The board could approve final changes by June 2012.

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Health Care Repeal Vote Followed the Money

Based on support and opposition research conducted by, when the Senate failed to adopt an amendment to the FAA reauthorization bill (S 223) that would have repealed health care overhaul legislation passed in the 111th Congress, the chamber collectively voted in alignment with their monied interests[1] as much as along party lines. The amendment failed by a vote of (47-51), well short of the 60 votes needed for adoption. The amendment mirrors language in H.R. 2, which was passed by the House on Jan. 19, 2011.

  • Interest groups that opposed this amendment gave 3.1 times more to senators that voted NO than to senators that voted YES
  • Interest groups that supported this amendment gave 50% more to senators that voted YES than to senators that voted NO
  • Only nine senators, seven Democrats and two Republicans, did not vote with the money
  • Two senators, Joseph Lieberman (I-Conn.) and Mark Warner (D-Va), did not vote

What should we conclude from this revelation? It should come as no surprise that our elected representatives are financially motivated. The election process has become an extremely expensive proposition. A campaign requires literally millions of dollars, and unless the candidate is independently wealthy, the funds to run their campaign must come from somewhere. There are plenty of special interest groups (a.k.a. lobbyists) with the money to help a campaign in exchange for a candidate’s commitment to “lean a certain way” once elected when a particular piece of legislation comes up for a vote. More importantly, these lobbyists are willing to provide information resources to help the elected representative become “informed” on the nuances of the legislation.

In an ideal world, shouldn’t your representative weigh all the available information and make his or her decision on what is best for the country, as well as his constituents? It would seem obvious that a significant contribution to a campaign fund might help influence that decision, especially if the candidate is then armed with the arguments professionally prepared by the lobbyists to assuage the constituency.

One must question how many of these elected representatives would vote differently if the financial pressure of campaign funding were eliminated. Tragically, mass media, today precludes such a Pollyanna-like notion. Without access to the public forum of advertising, no candidate for a national office would stand a chance of getting elected, and access to that forum is extremely burdensome except for the very wealthy, whose interests may or may not reflect the mainstream public.

What then, you might ask, motivates the lobbyists to exercise such influence on legislation. In most cases, the argument could be made that there are significant tax consequences in almost every piece of legislation. To eliminate the role lobbyists play in our political process, we would have to eliminate the whole notion of corporate taxes which is one of the primary targets of our legislators in each and every Congress. Those who support a complete overhaul of the tax structure have argued that the FairTax[2] would virtually eliminate the value of lobbyists in our legislative process. Perhaps we need to encourage our legislators to visit this idea.

[1] Contributions by interest groups established by the Center for Responsive Politics, includes reported contributions to congressional campaigns of senators voting on day of vote, from interest groups invested in the vote according to, November 23, 2004-November 22, 2010. Contributions data source:

A link to this data can be found on is a nonpartisan, nonprofit research group that tracks money in politics.

[2] For details on this idea go to

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