Private Doctor-Patient Agreements: How

Report Health Care Reform

Private Doctor-Patient Agreements: How

June 30, 1998 32 min read
Thomas Donohue
Policy Analyst

This lecture was held at The Heritage Foundation on June 30, 1998.


Last August, under a veto threat from President Clinton, Members of Congress quietly enacted a new provision of law as part of the voluminous Balanced Budget Act of 1997. It is unprecedented in American law.

Under Section 4507 of the Balanced Budget Act, any doctor is free to contract privately with a patient enrolled in the Medicare program, treat that patient on an independent basis outside of the rules and regulations of the Medicare program, and refrain from submitting any claims to the taxpayer for Medicare reimbursement.

However, Section 4507 contains a catch. A doctor who wishes to contract privately with a patient enrolled in Medicare Part B must first sign an affidavit to that effect, submit that affidavit to the Secretary of Health and Human Services within ten days, and agree to remove himself from the Medicare program and refrain from submitting any claims to Medicare for reimbursement for a period two full years.

In other words, a doctor could not even treat his mother in exchange for an apple pie without dropping out of Medicare for two years. The new law has been the subject of extensive and heated debate in Congress. It also is becoming a subject of debate around the country.

Curious Propositions
Since the 1997 enactment of Section 4507, a number of curious explanations have surfaced concerning the rights of doctors and patients in the Medicare program. As a result, we have some curious propositions evolving not only from the law, but also from recent litigation.

After gleaning the official record, let me just share with you a few of them. I think you'll find them intriguing, if not entertaining.

Proposition #1:
Americans 65 and over who are enrolled in Medicare have no constitutional right to privacy in their relations with their physicians unless they are getting an abortion or securing birth control services. Here in Washington, the federal district court recently ruled that personal liberty and privacy are restricted to certain fashionable-one could say politically correct-medical conditions adjudicated by the federal courts.

Proposition #2:
Private contracts between doctors and Medicare patients were always illegal-according to certain Members of Congress and spokesmen for the American Association of Retired Persons, among others-even if they were not against the law. No, I'm not making any of this up.

Proposition #3:
Your personal freedom to spend your own money on medical services outside of Medicare depends not on federal law or regulation made pursuant to the law, but on whatever the Health Care Financing Administration (HCFA) may say in communications with doctors in something called a carrier manual.

Proposition #4:
HCFA has authority to impose rules and regulations not only on transactions between doctors and patients within Medicare, but also on transactions that take place outside of Medicare.

So we've learned all kinds of wondrous new things since passage of the Balanced Budget Act in 1997.

The first of our speakers this afternoon is the Honorable Jon Kyl, a United States Senator from Arizona. He was elected to the Senate in 1994, after serving four terms in the House of Representatives. He has distinguished himself as a strong proponent of economic growth, an advocate of lower federal spending and lower taxes, and a supporter of a balanced federal budget.

Senator Kyl is a member of the Judiciary Committee, the Energy and Natural Resources Committee, and the Intelligence Committee. He is an honors graduate of the University of Arizona, and also a graduate of the University of Arizona Law School.

Our second speaker is Kent Masterson Brown. Kent is a nationally recognized lawyer, practicing in Danville, Kentucky, and Washington, D.C. He is a graduate of Centre College in Danville, Kentucky, and Washington and Lee University School of Law in Lexington, Virginia. The focus of his practice has been health care law, with a strong emphasis on American constitutional law.

Kent Brown made history as the first attorney representing the Association of American Physicians and Surgeons (AAPS), the physicians group responsible for litigating the lawsuit that forced the Clinton Administration to disclose the content and composition of the Health Care Task Force run by Hillary Rodham Clinton. AAPS won the case. It was the first time in history that the legal status of the first lady had ever been addressed.

The White House generated some interesting internal documents relating to Mr. Brown. In a March 11, 1993, memo to one of the Clinton Health Care Task Force leaders, Carolyn Gatz, then "on loan" from the Commerce Department, summed up Brown's professional and political life in two nice paragraphs. According to the White House memo, he is "extremely conservative"; he is a "Reagan Republican"; he is prominent in the Republican Party; and he was "mortified that President Clinton won." He is described as a "solid guy"; he is also identified as "a smart fellow who's always well prepared" and would make "a good Roman senator."

Our third speaker is J. Edward Hill, a family physician from Tupelo, Mississippi. Dr. Hill was elected to the American Medical Association's Board of Directors in 1996. He currently serves on the Finance Committee of the AMA. He was previously President of the Mississippi State Medical Association.

Dr. Hill's dedication to patient care has been recognized in Mississippi and at the national level. He was chosen Mississippi Family Doctor of the Year in 1991, and was runner up for Good Housekeeping magazine's Family Doctor of the Year award in 1977.



I found it instructive that Bob Moffit would manage, as he always does, to get motherhood and apple pie involved in the broader discussion, because this is a motherhood and apple pie issue.

It is a fundamental freedom that we're talking about here. President Clinton's proposed health care legislation of 1993, Section 1406, paragraph d, paragraph 2, contains a provision that prohibits private contracting for seniors and everyone else. So the provision that was added to last year's Balanced Budget Act is not an aberration. As a matter of public policy, the Clinton Administration wants all Americans to be served by a government-run health care program and for this government-run program to be the only way in which they can get medical care. In the case of senior citizens, it's either Medicare or no care.

How did this happen? It started out with a confusing HCFA policy, as Bob noted. HCFA policy resulted in physicians being unsure whether or not they could engage in private contracting, even though there was nothing in the law that prohibited it. Why? Because they were receiving missives from HCFA that suggested they would be prosecuted for fraud if they did not submit their bills to Medicare in all cases.

The Congressional Debate
In order to ensure that there was no longer any question about this, and to deal with some anecdotal situations which patients had brought to my attention, I decided to help. These patients had not been able to receive care from physicians who were no longer accepting Medicare patients because of these HCFA missives. We got an amendment passed, as part of the Balanced Budget Act of last year, which explicitly enabled people to contract privately.

The Clinton Administration threatened to veto the entire Balanced Budget Act if the Kyl Amendment stayed in. As a result, unbeknownst to me, very late one night, two representatives-one from the House and one from the Senate-compromised with the Administration over this provision and inserted a poison pill. They didn't want to directly attack the right of senior citizens to contract privately, so they went at it another way. You can contract privately, they said, if you can find a doctor who is willing, in advance, to dump all of his Medicare patients for a two-year period. Then, and only then, can you privately contract with a doctor. That, of course, makes the provision essentially meaningless.

Since then, we have been trying to find a way to get this restriction out of the law. At the end of the session last year, we attached a repealer of the two-year limitation to one of the appropriation bills. Our colleagues in the House of Representatives didn't have the stomach for it because of opposition by the American Association of Retired Persons (AARP). The Senate leadership was willing; the House leadership was not. So that attempt didn't succeed.

We began this year with hearings in the Senate Finance Committee. There are not enough votes to get it out of the Finance Committee because two Republicans, Senator John Chafee and Senator Jim Jeffords, are not willing to support the effort. The chairman is a little questionable on it as well.

And since congressional Democrats are uniformly against private contracting in Medicare, we are not likely to be able to pass legislation that Representative Bill Archer has sponsored in the House (with 194 cosponsors) and that I've sponsored in the Senate (with 49 cosponsors). That means we have to find some other mechanism. The Public Health Service Act reauthorization and two or three appropriation bills could be used as vehicles to get this provision repealed.

The problem is that in the Senate, we probably will need to have 60 votes to go to cloture and take a vote on the amendment. That means we have to do better than the 51 votes that we got on the sense of Congress resolution that passed on April 1 of this year (51 to 47). That was a non-binding amendment to the budget resolution that seniors should have the freedom to contract.

Going on Record
Why did we promote that budget resolution amendment? To get people on record the second time. Remember, they had already gone on record once with a majority vote in the Senate to approve the provision on private contracting. In fact, we got 64 votes that time. We knew that in this situation, with the Clinton Administration now firmly against it, we would be lucky to get the majority. But we got 51 votes.

The problem with an amendment is getting the 60, and without the ability to get 60 votes, we're not likely to get an amendment attached to one of these appropriation bills. The concern is that this is an election year, and the AARP and the Clinton Administration are against this. Since the Administration would veto the amendment if we passed it, why go the extra mile, stick our necks out, and get whacked again at election time? That's the politics of it. That's what we are up against in Congress.

I'll conclude by saying that I don't think there's anything more fundamental to American freedom than the ability to provide for yourself or your loved ones when your health or your life are at risk. It seems to me that when Bob Moffit talks about the doctor treating his mother in exchange for an apple pie, he puts it in very stark and personal terms. If you can't take care of your loved ones, except through the government monopoly health care program, then you've lost a basic freedom. And if we don't fight for this freedom, we are likely to find ourselves on a slippery slope toward losing similar freedoms.

Given this Administration's desire to continually expand the coverage of the government entitlement health care programs, they will eventually turn an entitlement into a monopoly program. It won't be just senior citizens; eventually, it will be everybody. That is the kind of government control that the 1993 Clinton health care bill would have established.

Whether we're talking about taking care of mom for an apple pie or providing for ourselves in any other case in which our health or the health of our loved ones might be at stake, this principle is worth fighting for. Conservatives have to work together to carry the message out to the hinterlands.

This issue is a very popular one. Just this weekend, I appeared at a couple of events, and people-a lot of people-came up to me and talked about this matter of Medicare private contracting. My Senate colleagues tell me the same thing every Monday or Tuesday after they've been out talking to their constituents as well.

So this is an issue that is well understood by the people of America. And it's also probably well understood by the Clintons. That is why they are so desperate to hold onto what they have temporarily won-and why we have to take it back.



Before I go into my brief remarks, let me publicly thank you, Senator Kyl, not only for your courage in this fight, but also for your wisdom in it. This is a moral issue. There is serious denial of care out there. People who are on Medicare understand that this is not an issue just for wealthy Medicare beneficiaries who want to go out and get so-called Cadillac care. This is an issue that affects every single Medicare beneficiary, across the board and across the country.

I represent the United Seniors Association as special counsel. I represent that organization for the purpose of filing an action and prosecuting an action challenging the constitutionality of Section 4507.

In any lawsuit, a court must find that there is true case or controversy before it will address constitutional issues. It only addresses real, live issues, not imaginary ones. It doesn't render advisory opinions. In any lawsuit of this magnitude, therefore, one has to show that this is a live issue; that there is a serious problem, case, or controversy which the court must address. We have been able to demonstrate, in this case, the serious denial of care in the Medicare system. Let me just explain it to you in everyday terms.

Medicare was enacted in 1965. When it was enacted, the law had several preamble provisions: Sections 1395, 1395(a), and 1395(b) of Title 42. Those preamble sections simply said that Medicare would guarantee the choice of provider to every Medicare beneficiary; that it would guarantee even the choice of insurance coverage-that beneficiaries could get any insurance coverage they wanted, even self coverage; and, finally, it would guarantee that the United States government would not interfere in the practice of medicine, even with the compensation of health care providers.

Big Medicare Changes
As we all know, in the years since 1965, things have changed and Congress has repeatedly amended the Medicare law. Principally in 1986, it amended it in a staggering way.

When first enacted, Medicare was nothing more than any other insurance program. There were certain "excluded services" that Medicare would not cover under any circumstance. They are small in number: some physical exams, orthopedic shoes, things like cosmetic surgery. Everything else was considered a "covered" service. Medicare would reserve the right to adjudicate whether or not it would pay for these services.

Those have all been codified in the Current Procedural Technology (CPT) codes used to categorize medical procedures for billing purposes. There are some 7,400 CPT codes, each covering a different medical service across the entire spectrum of medical specialties. Medicare will cover those, but only when Medicare thinks they are "reasonable" and "necessary." That determination is made only after a claim is filed. These 7,400 services are services that every one of us in this room would potentially want if we became ill or if we were hurt.

The United Seniors Association, in this lawsuit, has concentrated its attack here because here is where we see the denial. One might ask, "Well, where is the denial? If Medicare doesn't want to cover a service, I guess it's okay." Up until 1986, if Medicare did not actually pay for a service it covered, and said it was "unnecessary," the physician could simply bill for it and be paid by the beneficiary for it.

In 1986, however, Medicare changed. The statute was changed by Congress to read as follows: If a physician provided a service that Medicare ultimately determined to be unnecessary, the physician then would have to reimburse the patient. If he was a "nonparticipating" physician, he billed the patient directly. If he was a participating physician, then the physician was barred from billing that patient unless the physician had what was called an Advanced Beneficiary Notice (ABN). The patient had to sign off on a sheet that, in effect, said, "The doctor told me this is likely not to be considered necessary. I agree to pay for it myself." If it is executed in that manner, then the patient can pay the doctor.

You might say-as HCFA has repeatedly said-that "If a service is found to be unnecessary, they can always get an Advanced Beneficiary Notice." Well, can they? The answer is, you cannot use Advanced Beneficiary Notices routinely. And the reason for that is that Medicare reserves the right-in three different instances-to go after the physician who performs services that Medicare deems to be unnecessary.

You might think that if Medicare is deeming all these services to be unnecessary, maybe they ought not be done. But Medicare's standards for medical necessity are not the same as the standards of care physicians use across the board.

Let me give you an example. A patient wants a prostate screen, a prostate specific antigen (PSA) test. Can a patient go into a physician's office and have the physician recommend that this test be done to him every year? No. Why? Because Medicare won't pay for it every year. Can patients go in and get diabetes tests? Serum glucose tests? Tests for all sorts of other diseases of aging? No, they cannot, because Medicare won't pay for them under those circumstances. Only when there are symptoms will Medicare pay.

Yet physicians across the board routinely recommend that patients get these tests in order to protect their lives and their health. It has gotten so bad with respect to screening and laboratory tests that the Office of the Inspector General of HHS issued a warning as of March 7, 1997, in which the IG said that, even though physicians and beneficiaries want screening laboratory tests, physicians who perform them without diagnoses will be subject to civil monetary penalties. After the 1996 enactment of the Kennedy-Kassebaum Bill, a physician could be fined up to $10,000 per instance.

Restraining Doctors
In the face of all of this, is a physician going to perform these services? Absolutely not.

The plaintiffs in this case have averred that they want these kinds of tests for hyperthyroidism, hypothyroidism, diabetes, prostate specific antigen tests, the whole gamut of them, as well as other medical services, and they want them in a manner that the doctor is free to give them. Their physicians have testified that they cannot give these tests, and they cannot give other services as well, because if a physician performs a service that Medicare deems unnecessary-even though he may have had an Advanced Beneficiary Notice-if he performs it again, it is considered possible fraud, even though that physician believes it is medically necessary.

There is the denial. The denial is serious and demonstrable.

We have challenged Section 4507 because it violates the very liberty interests that Senator Kyl was talking about. These are embodied in the First, Fourth, Fifth, and Ninth Amendments to the Constitution of the United States. This liberty is as fundamental as any right there is: your right to deal directly with a doctor. What other rights are worthwhile if you are sick? This has to be the most fundamental of all your rights.

Does Congress have the power to legislate in this field? Does Congress have a police power? No. Congress only has powers enumerated under Article 1, Section 8, of the Constitution. Historically, the Supreme Court of the United States has said that if any entity is to regulate health care, it is the states.

So we allege that Article 1, Section 8, and the Tenth Amendment are being violated by Section 4507 of the Balanced Budget Act of 1997. Further, we allege that it denies seniors equal protection of the laws. The reason: If you are 65 years old, you cannot get a physician to perform one of these services and have him bill you directly. Yet, if you were 64 years and 11 months old, you could.

Harming Seniors
We filed a lawsuit (United Seniors Association v. Shalala) on December 30 of last year after a vigorous briefing schedule. The initial case was argued before federal judge Thomas Hogan in the United States Court House here in Washington. We lost, and are appealing the decision.

But in his ruling, Judge Hogan finds certain interesting things. First of all, in his opinion of April 14, he says that both parties-HCFA and United Seniors Association-substantially agree that the two-year restriction on physicians who enter into contracts represents "a substantial barrier to the receipt of contracted services." So he finds there is harm.

He also finds that Medicare is the only primary health insurance available to seniors. And, of course, it is. Who else can compete with the federal government program when it's subsidized to the extent of 80 percent of its expenses? Practically speaking, seniors have no choice.

He then finds that the regulations and interpretations by HCFA further limit patients' rights not only to services, but also to the physicians of their choice. This is denial.

But then he says that the Supreme Court has declined to extend the right of "autonomous decision making" beyond certain limited contexts involving child-rearing, education, family relationships, procreation, marriage, contraception, and abortion. This federal district court, he says, is not inclined to create any "new areas of Constitutional protection" because it thinks that the lower courts should not be in a position to do that.

Is this a new area of constitutional protection? I hardly think so. Like Senator Kyl, I think it is the most fundamental of all rights embodied in the Constitution, and it was reserved to us, the people of the several states, when we ratified that Constitution.

What's next? We filed an appeal to the United States Court of Appeals for the District of Columbia Circuit. Many disparate groups, I am proud to say, are filing briefs amicus curiae in support of the plaintiffs, and other medical specialty societies are considering filing briefs in support of the plaintiffs and the appellant in this major case. The case obviously is going to get hotter as it goes higher. But we have every intention to take this all the way to the end.



On behalf of the American Medical Association's 300,000 physician and medical student members, I want to thank The Heritage Foundation for this opportunity to talk about ensuring physician choice for our nation's seniors. I hope my comments will help clear the air about what is at stake in this Medicare freedom to contract debate.

First, private contracting is about physicians and patients mutually agreeing not to submit a claim for Medicare covered services. Why is this a problem? Because HCFA has consistently interpreted Medicare law as requiring physicians to submit claims for all Medicare services provided to patients. In so doing, HCFA has historically taken the position that our Medicare patients were to be prohibited from entering into private contracts with physicians, unlike participants in every other federal health program.

HCFA officials have very recently claimed that physicians have never been required to submit a Medicare claim if the patient simply refused to authorize a claim-for example, where a patient does not want information about mental illness or HIV/AIDS disclosed to anyone. However, there were no official Medicare instructions stating this policy until carrier instructions were issued early in 1998, and even those are far from clear.

Physicians cannot afford to take risks as to what is and is not HCFA's policy. In fact, Medicare instructions since 1991 said that physicians who fail to submit claims "are subject to sanctions, including civil monetary penalties of up to $2,000 per violation and exclusion from the Medicare program."

Senator Jon Kyl tried to remedy this problem by offering an amendment to the Balanced Budget Act of 1997 that would have permitted private contracts if certain conditions were met. Unfortunately, this language was changed in the conference committee to read that if even one Medicare patient privately contracts with a physician, then that physician cannot see any other Medicare patients for two long years.

Scare Tactics
The AMA believes that this law is unfair to patients, discriminates against seniors, and ought to be changed. We believe the Medicare Beneficiary Freedom to Contract Act is the answer. This bipartisan patient-choice legislation, introduced by Senator Kyl and Representative Bill Archer, would repeal the two-year lockout. But opponents of the bill are using scare tactics and making misleading statements about the new legislation.

It has been alleged that private contracting will create a two-tiered system as physicians and the more affluent elderly opt out of Medicare, leaving regular Medicare a welfare program for the elderly. The truth is that the Medicare system is already multi-tiered. For example, due to Medicare's hodgepodge of payment rates, some beneficiaries have access to much richer plans than others.

For the poor elderly, access to service differs from state to state due to variations in Medicaid payment rates. Congress, in the Balanced Budget Act, partially addressed the first of these problems. But the Balanced Budget Act actually worsened the second problem by gutting the requirement that state Medicaid programs pay the Medicare co-payments for these "dual-eligible" beneficiaries. Ironically, the same groups now professing concern about two-tiered medicine declined to join the AMA in its battle against this misguided dual-eligible provision.

Experience with Medicare's risk-contracting program has shown that seniors are good health-care bargain hunters. The popularity of point-of-service plans shows that many people are willing to pay more in order to receive care from the physician of their choice.

In the same way, some patients just entering Medicare might want to continue treatment with a physician who has chosen not to participate in the Medicare program. Others, faced with a threatening medical condition, may want to seek care from a recognized expert who does not accept any new Medicare patients. Under current law, these choices would be impossible.

Fictional "Fraud" Scares
Here's some more fiction: Private contracting will result in confusion, double billing, and outright fraud. Well, here's the truth: The Kyl-Archer legislation includes important patient protections which would ensure that seniors understand the obligations they are entering into.

Any private contract would clearly identify the professional services to be covered; it would have to be in writing and signed by both parties. Potentially fraudulent billing practices could be detected and punished through a combination of specific provisions in the Kyl bill and existing fraud and abuse laws. The bill, for example, also requires physicians to supply information to ensure that Medicare makes no payments for services provided under a private contract. If Medicare did pay for services covered by the private contract, the patient would receive an explanation of Medicare benefits and could notify Medicare's fraud hotline.

The bottom line is: Put patients back in charge of their health care by giving them the choice to spend their own money if and when they see fit. In a country whose founding principle is individual liberty, the AMA believes the answer for our Medicare patients is the Kyl-Archer legislation.



I manage a medical equipment company that serves the entire Washington, D.C., metro area. When doctors prescribe equipment in the home, families often are surprised to find out that they might have to pay for the equipment because Medicare may not cover it. A lot of people just can't afford this equipment and say they don't want it.

Who really is calling the shots, doctors or patients who have no means of paying for this equipment? We have a lot of citizens withering away at home. Are there any provisions to make changes here? I hate to get off track, but when we're talking about Medicare reform, we have to address these issues as well.

Mr. Brown:
This is an area where there is a demonstrated denial; it's called self-denial. It happens every day. It happens across the country. But there are really two aspects to the denial.

One is when the physician tells the beneficiary, "I don't think Medicare is going to pay for this, but you can sign an ABN and pay for it yourself." Many patients say, "Well, I just don't want it." They self-deny.

On the other hand, there are circumstances where the physician-and this is very difficult to show in a hearing-feels that Medicare will deem something unnecessary even though he may believe it is appropriate for the patient. He doesn't bring it up because if he did, he would have to ask the patient to sign an ABN, and he already had a couple of ABNs signed like this the week before. Is this doctor now going to be subject to civil monetary penalties of up to $10,000 per instance for having yet another one signed?

Frankly, the private contract, where both parties feel much freer, is the answer. We're never going to stop somebody from saying, "I don't want it because I don't want pay for it." But we can at least free up the doctor to say, "Listen, I think you ought to get this service or medical treatment."

Do we have a problem with HCFA's telling people different things, depending upon which argument they wanted to win on a particular day?

Mr. Brown:
Yes, and let me underscore this. I think one of the greatest benefits of this entire dispute is that it has drawn HCFA's way of doing things out into the sunshine more so than ever before.

Let me give you a great example. I was part of the legal challenge to open up private contracting in Medicare in the 1992 case of Stewart v. Sullivan. There, the federal court judge found that he could not find any "clearly articulated policy prohibiting private contracting." Consequently, we declared victory, and Dr. Lois Copeland, my client, and her patients began to contract privately.

In 1993, HCFA decided to amend its massive Medicare Carriers Manual by putting in Section 3044, an ambiguous provision-I can't even figure it out-that is supposed to say something about private contracting. HCFA has tried to let everybody know that because of that provision, you cannot privately contract and "you have never been able to."

In 1995, Thomas Ault, the Director of the Bureau of Policy Development of HCFA, wrote a letter to James Pyles, a lawyer friend of mine here in Washington. Pyles had made a direct inquiry on behalf of a medical specialty society: "Can my physicians privately contract with their Medicare beneficiaries?" Thomas Ault, in August 1995, responded emphatically that if a beneficiary does not want to file a claim, a beneficiary does not have to, and you can privately contract.

In August 1997, however, when the Kyl Amendment was being considered, this same Thomas Ault came along and said, "Private contracting has always been prohibited." When I was arguing the case of United Seniors v. Shalala, the Justice Department responded that we weren't addressing the congressional history of it. "The hell with the congressional history," I said. "Here's a good example: Do you believe Thomas Ault in '95 or do you believe Thomas Ault in '97?" The problem is that HCFA will say whatever it wants to say, depending upon the audience.

In the Stewart v. Sullivan case, we noted that the Medicare carriers-the private insurance companies that contract with HCFA to administer the program-were sending out bulletins threatening physicians who entered into private contracts with fines and penalties. Seeing all these bulletins, which all read alike in every region of the country, we filed for a declaratory judgment, asking the federal district court in New Jersey to declare our rights. Did we have the right or not?

HCFA, through the Justice Department lawyers, orally told the court that they had no idea where these bulletins had come from. They disavowed any knowledge of being behind the publication of those bulletins. The federal district court said as much in the published opinion.

Dr. Hill:
If you think this is confusing to the people who study this issue all the time, imagine the fear of the doctor out there in the middle of the country taking care of a lot of Medicare patients. He's seeing 30 or 40 people a day, trying to take care of patients and trying to interpret the directives from the Medicare carrier, which often are contradictory.

That inspires tremendous fear among physicians, because they don't know what they're supposed to do or not supposed to do under all these unclear statutes. Doctors should not need to spend their time worrying about how to interpret these complicated regulations.

Dr. Hill, is there a serious amount of denial of service?

Dr. Hill:
Looking at it from a standpoint of principle, I think even one case of denial is serious. But I don't think it's rampant out there.

Mr. Brown:
Let me add an important point. The other side in this debate argues two contradictory things: One is that allowing Medicare private contracting will destroy Medicare, and two is that there is no problem. You can't have it both ways.

The truth is that there has not been much of a problem in the past, but if we continue current Medicare policies, there will be a pretty big problem in the future. That's because of three things. Number one, the Medicare reimbursements to the doctors are going down. They are not keeping pace with what the doctors need to cover their real cost. Number two, the bureaucratic paper work requirements for Medicare patients are substantial now. Number three, there is the real prospect of criminal prosecution in the event that you don't dot your i's and cross your t's properly.

There's a lot of confusion concerning the various coding requirements, and these complex statutes really create an atmosphere of fear among physicians, as Dr. Hill pointed out. So the reality is that more and more physicians, particularly specialists, are less and less inclined to take on new Medicare patients. I think it will increasingly become a problem. That's why private contracting is going to be a much more important right in the future than it has been in the past.

Mr. Moffit:
Gentlemen, let me just add one more observation. The baby boomers are looming. They are 77 million strong. The generation that brought you "sex, drugs, and rock and roll' is not likely to put up with all of the bureaucratic edicts coming from HCFA. On that score, the future is bright.

Bob, congratulations for finding Section 4507 buried in the Balanced Budget Act. When the United Seniors began talking about what could happen the way the law is written, HCFA started translating the law to satisfy everyone, to shut them up and pacify them. Who knows how HCFA would have interpreted Section 4507 if United Seniors and various groups hadn't complained? Can the actual law apply to all Americans as it is written?

Mr. Brown:
No, it's specific to Medicare. That's where it rests.

I want to go back to the earlier question about denial of care. As I told Senator Kyl, this is one of these things that's hard to demonstrate in a congressional hearing. First, most patients don't know, and second, the doctor hasn't said anything, obviously. No patient is going to get up there when he "self-denies." So, in those two circumstances which form the bulk of this problem, we really don't see the thing demonstrated in front of your face.

When I was asked to file this case, some 52 active members of the United Seniors Association wanted to be plaintiffs. After some discussions, I narrowed the group down to four people. I had never met them, and I asked them some serious questions about their health and what they wanted.

All of them indicated to me that they wanted certain explicit screening tests to be done every year. They were in varying states of health, from very good to very poor. One of them is a cancer patient. And when I asked them about that, they all said, "Yes, we want all those screens because we've seen some of our family die of diabetes. We know that when it is finally discovered, it's usually too late. We want to make sure that we catch it very early."

Then I got on the phone with all their physicians, also people I had never met. They were scattered all over the country, from Washington State to Florida. And I asked them, "Doctor, this lady, who is your patient, has authorized me to talk on her behalf and she wants these screens. Will you give them?" Every one of them said, "I'm afraid."

That shows a serious problem, but I think it's a potentially difficult one to demonstrate, or to show its magnitude, because of the way in which the system functions or the way in which doctors remain silent simply for fear. But here, every one of the nine physicians who handled those four patients said, "I'm afraid."

Of what, specifically, are they afraid?

Mr. Brown:
They are afraid to give the diagnostic screens without having an explicit symptomology for fear of being sanctioned.

Can anyone on the panel comment on what the impact will be on malpractice issues if you don't do the screen and somebody comes up positive?

Mr. Brown:
I assume you could be sued for malpractice.

You can't say, "Well, HCFA told me I couldn't do it?"

Mr. Brown:
Imagine that defense. It's a non-defense. The doctor is faced with a Hobson's Choice. That's why in many instances, the doctor just doesn't say anything.

Mr. Brown, your opponents argue that seniors do have a choice; they can dis-enroll in Part B and then privately contract. I'm wondering how you view the statutory language defining a Medicare beneficiary for purposes of Section 4507. Is it someone enrolled with Part A or Part B?

Mr. Brown:
A lot depends on how HCFA wants to interpret that. Until HCFA actually tried to clarify this after the debate became hot, HCFA could have tried to interfere even with doctors performing experimental stuff.

Your view is that there really isn't a practical alternative to Medicare because there isn't a private health care market for seniors?

Mr. Brown:

So it's a hollow argument, anyway. But does the argument hold up at all if, in fact, HCFA interpreted the language of the law to say, well, sure you can dis-enroll from Part B, but if you're still in Part A, you're still covered?

Mr. Brown:
Sure, you're covered by Medicare. You're absolutely covered by Medicare. Part A is mandatory, and Part B is almost mandatory in the sense that you have to go through some incredible hoops to get out of it.

Suppose that a beneficiary could just opt out of Part B and then did so in order to contract privately. Believe it or not, HCFA has already advanced that argument. The problem, as Judge Hogan noted, and as we've argued, is that is no option. To say to a patient, or to any person, that you have to give up the only benefit that is available in this country for coverage in order to privately contract is not a choice at all.

Not a court in the land-and there have been multiple cases where they have talked about standing-would say there is no harm where one is forced to give up a benefit like this in order to do something. Every court has thus far interpreted that to be a denial serious enough that they could get to the merits of the case. So, in that case, it's a denial because it's the only thing available.

Senator Kyl, you said the resolution of this issue is important to the future of the country. In terms of the private contracting issue itself, did I interpret you correctly as saying that this debate represents the ability of one side or the other to use the federal entitlement system to control things that they otherwise could not control under the Constitution?

Senator Kyl:
Yes. My concern is that this is literally the camel's nose under the tent.

The federal government has created an entitlement to health care for a group of Americans. Then, after they become part of the system, it dries up any other alternatives for a Part B coverage, for example. It then creates a monopoly, and the bureaucracy says, "Well, it's not only that you are entitled to take advantage of this government program if you are a senior, but now we decree that it is this program or no program. It's Medicare or no care." And then they say, "By the way, we're going to invite everybody from a certain age to become part of it." The Clinton proposal is to add a new class of eligibility, starting at age 55.

Please recall, I quoted the section from the Clinton health care proposal of 1993 that does in fact expand this type of restriction to everybody in the country. So I think you will see the gradual application of this same principle to every other government entitlement program. That is why it is so important to nip this in the bud right now.

Congress has acknowledged the economic trouble of Medicare. There is also this fear of erosion of Medicare. How does that play into the politics of this?

Senator Kyl:
Probably the biggest argument against Medicare private contracting, after the fraud argument, is that the net result could be the erosion of Medicare. There are virtually no physicians denying anybody care. This is just not something for us to worry about.

Then our opponents say that this will ruin Medicare because, as soon as doctors figure out they can do this, they're going to tell every one of their patients with any money, "Sorry, I can't treat you under Medicare, but if you'll privately contract with me, I'll be happy to take your money." Therefore, Medicare will be destroyed. There won't be any more Medicare program, and the doctor will have effectively created a direct fee-for-service, private contracting situation.

That's the concern-after they cite the GAO study that says that this is not a problem. That GAO study does note that there are hot spots in the country where this is a problem. So I think they try to have it both ways. But to answer your question, that's what our opponents say will happen if this right to privately contract exists.

The way the Medicare program is going, with the many problems that the government has created for the participants in the program, it wouldn't surprise me that more people are going to want to privately contract. The obvious answer, of course, is to clean up the program. Private contracts then would simply be a safety valve, in effect, for people to use if they needed to.

Mr. Brown:
I'd like to know if we could ever get an accurate accounting of the hundreds of millions of dollars that Medicare spends just adjudicating these medical "necessity" claims.

Let me give you an example. One of our plaintiffs in the case of United Seniors Association v. Shalala was a cancer patient from Seattle, Washington. Several years ago, her lymphoma was discovered-using an asymptomatic screen by her internist, by the way, which is why she's still living.

There is a history of cancer in her family, and she wanted a mammogram. This is before Congress had amended the benefit. She wanted a mammogram, but she had had one less than a year before. Her doctor, an old friend, said, "Well, it's probably going to be determined unnecessary, but I'll go ahead and give it to you."

They filed a claim, as HCFA demands. The claim was filed with the Medicare carrier in Fargo, North Dakota. The Medicare carrier wrote to the patient and to the physician, as the statute requires them to do, telling them that the service rendered was "medically unnecessary" and that the patient should not pay the doctor. The doctor was a "participating" physician.

The patient got upset and wrote back to the Medicare carrier in Fargo: "How can you possibly tell me to do that? This man has saved my life more than once. I believe in him. I believe I need it." They wrote a letter back saying, "I'm sorry you feel that way, but you are not to pay that doctor." They managed to get a big heap of correspondence going between Fargo, North Dakota, and Seattle, Washington, where the service was rendered.

Finally, after multiple conferences back and forth and a written statement by the doctor, Fargo consented. If this is happening to one person-and by the way, this has happened in multiple circumstances with this husband and wife who are plaintiffs-with this carrier, think of the 38 million Medicare beneficiaries across the country.

Mr. Moffit:
About 24 percent of all Medicare Part B claims are denied annually.

Mr. Brown:
Many, if not most, of these are denied as "medically unnecessary."

The point of Senator Kyl's bill is that it shouldn't matter. If a doctor wants to provide the service and the patient is willing to pay for it, Medicare should be delighted, just as a private insurance carrier would be delighted that it's off the hook. Instead, we are spending untold millions of taxpayers' dollars denying claims and then trying to pursue the doctor for providing the service.

I've been involved in at least 42 of those kinds of cases, and never once in my experience has a doctor ultimately been found guilty of providing a service that's unnecessary. Doctors are good people, generally speaking. They do have the best interests of their patients in mind. And when push comes to shove, they customarily prevail.


Thomas Donohue

Policy Analyst