Off and Running

The new Congress now has convened, and President Bush has been certified by the Electoral College so we’re off and running with a fresh, new policy debate.

The White House economic summit in December set an agenda for the next year and beyond that will begin with a debate over Social Security and move into tax reform and tort reform. Will health care fall by the wayside?

Not likely. In his first major speech this year, Mr. Bush focused on the need for medical liability reform, and we are anxiously awaiting the President’s 2006 budget with his health care spending priorities.

Many Congressional committees also have a full plate of health care agenda items, including Medicaid modernization, tax credits for the uninsured, new insurance pooling arrangements, cross-border purchasing of health insurance, and enhancements of health savings accounts, including tax deductibility for HSA-qualifying insurance and rebates to small businesses for HSA deposits for their employees.

At the same time, there will continue to be a focus on implementation of the new Medicare law, including the drug benefit, and the debate will inevitably be drawn to drug prices and drug importation. The HHS Task Force provided an extensive report on the findings from its year-long investigation, concluding that there would be a huge safety risk with little or no savings to consumers if importation were allowed. See our item in the articles section below for a summary and link.

Drug safety and approval will be a prime focus of Congress, and the Food and Drug Administration is likely to be on the hot seat after last fall’s vaccine shortage and the withdrawal of Vioxx from the market. The challenge will be for Washington to resist its natural tendencies to regulate and intervene and to look for a new generation of solutions.

AEI’s Scott Gottlieb has been writing about the opportunities to use information technologies in determining drug safety after drugs are approved. He recommends “aggregating the collective experience of the millions of patients who take medicines every day, and recording this information and using it to draw meaningful scientific insights,” in a letter he wrote to the editor of The Wall Street Journal. If we knew more in advance about which patients would be at risk for certain medications, the drug could be prescribed to the millions of people who still could benefit.

In fact, the FDA just cleared a test that will allow doctors to check a patient’s DNA when choosing certain medications. It is designed to improve doctors’ ability to prevent harmful drug interactions and to target drugs to those patients who will most likely benefit.

Facilitating the use of new and better information technologies in the health sector will be the foundation of most health policy discussions in the coming session, including patient health records, collection and dissemination of outcome data, and better use of information technologies to create and test new drugs.

And the information revolution will extend to patients as well, including how consumers can get better and more useful information about prices, value, and quality to spend their health care dollars wisely.

The key words in this new world will be innovation and incentives. It is crucial that Washington not react with more regulation and obstruction of new technologies, but instead use new information technologies to facilitate better, more informed decisions. And new incentive structures are needed throughout the entire health sector to continue to promote innovation.


Our friend and colleague, John Desser, has written an excellent summary of the health care issues that will be facing Congress in the coming session in an article for the January issue of Health Care News, published by the Illinois-based Heartland Institute. We recommend this to you as well. (The Heartland site is temporarily down. Please check later for the link.)

Grace-Marie Turner



? Bush’s unheralded health care agenda

? Report of the HHS Task Force on Drug Importation

? Putting markets to work in vaccine manufacturing

? Florida, Pfizer team up to improve Medicaid patients’ use of health services

? A setback for a popular health benefit


Author: Merrill Matthews

Source: The Weekly Standard, 12/27/04

President Bush’s agenda of health care reforms, if enacted, “would turn upside down – actually, rightside up – almost all of the current perverse economic incentives that plague the U.S. health care system,” writes Merrill Matthews, director of the Council for Affordable Health Insurance. Matthews examines the “perverse incentives” inherent in the health care system and discusses President Bush’s six areas of reform: 1) A tax credit for the uninsured; 2) Health Savings Accounts; 3) Tort reform; 4) Buying health insurance across state lines; 5) A tax break for long-term care insurance; and 6) Association Health Plans. “Each proposal is a relatively modest legislative change, but taken together they will fundamentally restructure the incentives in the system,” writes Matthews.

Full text:


Source: Department of Health and Human Services, December 2004

The Health and Human Services Task Force on Drug Importation issued a 145-page report on December 21, 2004, which examines topics ranging from the safety of unapproved drugs to the effects of importation on prices and consumer savings. The Task Force’s key findings include: 1) The current system of drug regulation in the U.S. has been very effective in protecting public safety, but is facing new threats. It should be modified only with great care to ensure continued high standards of safety and effectiveness of the U.S. drug supply; 2) There are significant risks associated with the way individuals are currently importing drugs; and 3) It would be extraordinarily difficult and costly for “personal” importation to be implemented in a way that ensures the safety and effectiveness of the imported drugs.

Sally Pipes, president of the Pacific Research Institute, reviews the highlights of the report in a commentary for Medical Progress Today. “The report’s message couldn’t be clearer and the data more overwhelming,” concludes Pipes. “Drug importation from Canada may be an effective political gimmick, but it’s lousy public policy.”

Full text of HHS report: 

Full text of Pipes commentary:


Authors: John E. Calfee and Scott Gottlieb

Source: American Enterprise Institute, December 2004

The flu vaccine shortage should not be solved with more government involvement, but instead with policies that allow companies to make vaccines more quickly and less expensively, scholars Jack Calfee and Scott Gottlieb argue in a paper for the American Enterprise Institute. “It is time to look forward, especially at the opportunities offered by improved technology for developing and manufacturing vaccines,” they write. They recommend a four-step plan to improve the environment for new vaccine development: 1) The government should focus on solving regulatory challenges, including adopting better technologies for demonstrating safety; 2) Federal liability preemption should apply to all vaccine products approved by the FDA; 3) Government should use targeted subsidies to make vaccines part of the safety net for low-income consumers, rather than cutting costs by setting prices; 4) Public health officials should encourage differentiation in the vaccine market, rather than discourage it as they do today.

Full text:


Author: Susan Konig

Source: Health Care News, 01/01/05

A joint program between Pfizer Inc and the State of Florida to monitor and improve the health of Medicaid recipients with chronic medical conditions has saved the state $2.18 for every dollar invested in the program, according to a report in Health Care News. In addition, the “Florida: A Healthy State” program showed improvements in health outcomes nearly across the board: 52% of patients improved their physical health score; 50% of diabetic patients lowered their Hemoglobin A1c level; physician visits for patients with heart failure increased by 13%; and patients reduced their emergency department visits by 19% and their inpatient visits by 7%. During a 27-month period ending in September 2003, the program reduced the growth in Florida’s medical costs by $41.9 million through a statewide network of community hospitals, civic organizations, and patients’ advocate groups that provide nursing care and patient education to high-risk, targeted Medicaid patients, according to a study by Medical Scientists Inc., an independent organization that examined the results of the program.

Full text:


Author: Tom Herman

Source: The Wall Street Journal, 01/05/05

Treasury Secretary John Snow rejected a request by Senate Finance Committee Chairman Charles Grassley that the Treasury Department use its administrative authority to rewrite the “use it or lose it” rule that applies to Flexible Spending Accounts. In his December 23, 2004, letter to Sen. Grassley, Sec. Snow writes that “[a]bsent Congressional action, Treasury believes we do not have sufficient legal authority to administratively change this longstanding rule.” Sec. Snow also said that fixing the “use it or lose it” rule would impact other health care priorities: “Treasury economists have estimated that there may be a reduction of up to 10 percent of the number of health savings accounts (HSAs) established if the ‘use it or lose it’ rule is eliminated,” Snow wrote. While FSA rollover “has run into a major roadblock,” according columnist Tom Herman for The Wall Street Journal, Snow did leave open the possibility of “a brief administrative grace period” each year, thus “effectively extending the period slightly beyond one year before amounts are forfeited.”

Full text (subscription required): 

Full text of Treasury Department response to Grassley Inquiry:


Release of the 2004 Post-Election Survey on the Health Care Agenda for the New Congress

Kaiser Family Foundation and the Harvard School of Public Health Briefing

Tuesday, Jan. 11, at 9:30 a.m. (Registration and breakfast at 9 a.m.)

Barbara Jordan Conference Center, Washington, DC

To RSVP call Tiffany Ford at (202) 347-5270, or email

Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features research and writings by participants in the Health Policy Consensus Group, articles of interest from the health policy world, and announcements of coming events. Health Policy Matters is published by the Galen Institute, a not-for-profit public policy organization specializing in information and education on health policy. For more information about the newsletter and our organization, please visit our website at

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