Brawls on Capitol Hill

Defending the taxpayer can be dangerous business, as I learned yesterday on Capitol Hill.

I took arrows from members of the House Energy and Commerce Health Subcommittee about my testimony on legislation that would block seven new rules designed to curb fraud and abuse in Medicaid.

I was a minority witness (in more ways than one) on the side of the beleaguered taxpayer. I explained that government agencies have for years detected fraudulent billing in Medicaid and that it is the administration's responsibility to make sure that Medicaid is spending taxpayer dollars legally and appropriately. Hence, the new rules issued by the Centers for Medicare and Medicaid Services.

But I was at the witness table with a pediatrician, school superintendent, hospital manager, and a Medicaid director, among others, all of whom were arguing that these rules would devastate the program.

The changes would slow federal Medicaid spending by 1 percent over the next five years — or $13 billion out of the $1.2 trillion in federal Medicaid spending. But these new rules could demonstrate a much-needed willingness to bring greater integrity into the program.

My time on the Medicaid Commission underscored two important lessons: That Medicaid is very important to millions and millions of people who often have no place else to go to support their needs for medical care. And that the financial sustainability of the program is threatened by payment structures that induce waste and fraud, as has been well-documented by the Government Accountability Office (GAO) and the Office of Inspector General (OIG) at the Department of Health and Human Services.

I won't bore you with the details of these rules, but I gave two examples in my testimony from the OIG that rose the rankles of the sponsors of the legislation:

  • A nursing home in Albany County, New York, had total operating costs over a three year period of $70 million. Creative state billing resulted in $132 million in payments to the facility. But the state forced the nursing home to give back all but $50 million, meaning that it operated at a $20 million loss. As a result, it was seriously understaffed and was at risk of losing its accreditation. It is difficult for me to see how this creative state financing was helping Medicaid patients.
  • Elsewhere, taxpayers were being billed for transporting Medicaid recipients to the grocery store, restaurants, or even bingo games, clearly not medical expenditures allowed under Medicaid.

I was grilled by several members of the committee, but held my ground. Just because states are using these financing schemes to pad their budgets, as the GAO has documented, doesn't make it right.

But it also shows how incredibly easy it is to demagogue anything that would change Medicaid — or Medicare or SCHIP, for that matter. This is just one more sign of the growing political control over our health care economy. People with a vested interest aggressively defend the status quo. The rest of us are left to pay the bills.

Joe Antos of AEI, my ally on the panel, explained that "entitlement programs are on auto-pilot" and that "runaway health spending is contributing to a growing fiscal crisis" that is threatening other legitimate functions of government. His testimony is very much worth reading and could result in a follow-up hearing.

Here is the link to my testimony if you are remotely interested in this issue or want citations, plus the CliffsNotes 5-minute summary for speed reading. And both of us referred to the excellent work by Bob Helms of AEI showing how fundamentally flawed Medicaid's financing system is.


And another battle is brewing on Capitol Hill this week, this one involving Health Savings Accounts.

One small company, Evolution Health, appears to see a market opportunity in getting Congress to pass legislation that would require outside "substantiation" of all purchases from a Health Savings Account. This will come as no surprise: Evolution has a business in electronic payment technologies and would offer its services as a substantiator.

That may seem like an obscure, why-should-anyone-care problem. But it could throw a monkey-wrench into HSA adoption by adding new costs and complexities for individuals and employers, and it would have a chilling effect on banks' willingness to offer the accounts.

And the legislation is totally unnecessary! Under current law, if people with HSAs use the money in their accounts for non-medical purposes, they have to pay taxes on the money, plus a 10% penalty — the same as if they had withdrawn the money directly.

When people take a deduction for other kinds of medical expenses on their tax returns, they can claim anything they want, but if they are audited and can't validate the expense, they are subject to penalties.

The "substantiation legislation" Congress is considering is another mother-may-I, nanny-state provision that assumes people are crooks and can't be responsible with their own money. The vast majority of HSA expenditures are for legitimate and allowed medical expenses. This self-interested legislation would do considerable harm to the overall functioning and adoption of HSAs and is unnecessary at best.


The Senate is expected to take up legislation soon that would overhaul our patent laws. But beware. The Founding Fathers believed protection of intellectual property rights to be so important that they wrote it into the Constitution. The Congress is playing with fire here.

I had an article in the New York Post this week explaining how the efforts of the tech titans to bring our patent laws into the 21st century could squash small time inventors. See below for the link.

Any new patent laws must keep the playing field level for all inventors and entrepreneurs, from garage inventors to huge labs. The legislation that Congress is considering doesn't do that.

The House already has passed its bill. The right of innovators to protect their creations has historically been a central driving force in the strength of our economy. Congress must act only with the utmost caution and respect for this constitutional protection!

Grace-Marie Turner

Recent News Articles and Studies

Should the United States Mandate Health Insurance…Or Not?
Little-Guy Patent Peril
Taking Back Our Fiscal Future
Generics: Just as Good?
County Worried Over Decrease in Patient Load
America, Insure Thyself
Health Care Financing
, Efficiency, and Equity

Should the United States Mandate Health Insurance…Or Not?
Grace-Marie Turner, Galen Institute
The Medscape Journal of Medicine, 04/08

Grace-Marie Turner discusses whether the government should require everyone to have health insurance in a webcast video commentary presented by Dr. George Lundberg, editor-in-chief of The Medscape Journal of Medicine. While universal coverage is an important goal, an individual mandate for health insurance has far-reaching consequences for individuals, businesses, and the health sector overall, says Turner.

Little-Guy Patent Peril
Grace-Marie Turner, Galen Institute
New York Post, 04/02/08

The Patent Reform Act pending before Congress poses a threat to independent entrepreneurs, writes Grace-Marie Turner. The act's chief supporter is the technology industry, whose large firms often incorporate components that have been patented by others into their products. In recent years, they've faced a scourge of lawsuits from patent hoarders. The tech titans have valid grievances, but this bill tries to solve their problems at the cost of small-business owners and independent inventors — who'd be forced to watch helplessly as others reap the rewards of their work. If the measure passes, thieves and veterans of the patent bureaucracy would have a substantial — and unfair — leg up on rookie innovators.

Taking Back Our Fiscal Future
The Brookings Institution and The Heritage Foundation, 04/08

Longtime federal budget and policy experts, including AEI's Joe Antos, Heritage's Stuart Butler, and the Urban Institute's Gene Steuerle, have joined together with scholars from The Brookings Institution and other groups to issue a warning about the importance of gaining control of our nation's fiscal future. The group has been meeting for nearly two years to define the dimensions and consequences of the looming federal budget problem, examine alternative solutions, and reach agreement on what should be done. The group recommends:

  • Congress and the president enact explicit long-term budgets for Medicare, Medicaid, and Social Security that are sustainable, set limits on automatic spending growth, and reduce the relatively favorable budgetary treatment of these programs compared with other types of expenditures.
  • The programs be reviewed on a regular schedule by the Social Security and Medicare Trustees or the Congressional Budget Office to determine whether they will remain within budgeted amounts.
  • Significant long-term deviations from budgeted amounts trigger automatic adjustments in benefits, premiums, provider payments, or other revenues. These adjustments could only be over-ridden by an explicit vote of Congress and acceptance by the president.

Generics: Just as Good?
Melissa Healy
Los Angeles Times, 03/17/08

There are about 9,000 generic drugs on the U.S. market, and 64% of all prescriptions filled in the U.S. are for generics, but a growing number of physicians and patients are reporting problems with generics that they say don't work as well as the newer drugs or cause serious side effects, writes the Los Angeles Times. The article recounts stories of patients who were switched to generics to save money, either at their own direction or by their health plan, including a woman who suffered a relapse of her mental illness after she was switched to a generic version of the anti-depressant Wellbutrin XL. Patient groups are forming to share information and help others to see that their symptoms may be a result of taking the less effective, older drugs.

County Worried Over Decrease in Patient Load
Bill Murphy
Houston Chronicle, 03/27/08

The Houston Chronicle reports that the rise of walk-in clinics at retail outlets and expanded government prescription drug coverage to seniors may be responsible for the shrinking number of patients at the Harris County Hospital District in Texas, which serves as the health care safety net for nearly a third of the county's 3.8 million uninsured residents. District officials pointed to the increasing popularity of in-store clinics that have sprouted at Wal-Marts, CVS stores and retail outlets across the city and nation as a possible source of patient drain. The in-store clinics allow patients to get treated, without an appointment, by physician's assistants and nurse practitioners for minor ailments. Patients who use the district's community health clinics do not receive same-day service, often waiting two weeks to be seen. Another possible cause of the shrinking patient load may be the changes in Medicare prescription drug coverage that took effect two years ago. Before Medicare Part D began, senior citizens without prescription coverage could get medicines when they were treated at district facilities. Now, senior citizens who can get medications at any drug store through Medicare Part D are choosing other health care providers over the district's doctors.

America, Insure Thyself
Regina Herzlinger, Harvard Business School and Manhattan Institute
The Washington Post, 03/29/08

Harvard Professor Regina Herzlinger weighs in on the debate between Sens. Hillary Clinton and Barack Obama over universal health coverage. In arguing about universal coverage and affordability, Clinton and Obama rightly focus on the critical pieces of the health-care puzzle, she writes. But unless they also address the question of consumer choice, their debate is much ado about nothing: We won't have truly universal health care until we have a mechanism to bring everyone into the system, and it won't be affordable until individuals and families can choose their own insurance coverage from competing insurers.

Health Care Financing, Efficiency, and Equity
Sherry Glied, Columbia University
National Bureau of Economic Research, 03/08

Glied examines the efficiency and equity implications of alternative health care system financing strategies. Using data across the OECD, she finds that almost all financing choices are compatible with efficiency in the delivery of health care, and that there has been no consistent and systematic relationship between financing and cost containment. Using data on expenditures and life expectancy by income quintile from the Canadian health care system, she finds that universal, publicly-funded health insurance is modestly redistributive. Putting $1 of tax funds into the public health insurance system effectively channels between $0.23 and $0.26 toward the lowest income quintile people, and about $0.50 to the bottom two income quintiles. Finally, a review of the literature across the OECD suggests that the progressivity of financing of the health insurance system has limited implications for overall income inequality, particularly over time.

Upcoming Events

Enhancing Quality Performance Me
asurement: A New Paradigm for Health Care Accountability Has Arrived

Saturday, April 5, 2008, 7:45 a.m. – 5:00 p.m.
Chicago, IL
Grace-Marie Turner is the keynote speaker at this ABQAURP and PHII Event.

2008 Annual Public Affairs Conference
National Association of Manufacturers Event
April 6-8, 2008
Las Vegas, NV
Grace-Marie Turner will participate in the session entitled, "Got Healthcare?" on Monday, April 7 at 9:15 a.m.

APEE International Convention
The Association of Private Enterprise Education Event
April 6-8, 2008
Las Vegas, NV
Grace-Marie will present "Medicare Reform: Responses to the 'Excess General Revenue' Funding Warning" at 8:00 a.m. on Tuesday, April 8.

Senator John McCain's Tax and Economic Plans: A conversation with Douglas Holtz-Eakin, McCain Senior Economic Policy Advisor
Urban-Brookings Tax Policy Center Event
Monday, April 7, 2008, Noon – 1:30 p.m. (Lunch included)
Washington, DC

Health Care in Crisis: What's Driving Health Reform in Canada and the United States?
The Canada Institute and Global Health Initiative of the Woodrow Wilson International Center for Scholars Event
Wednesday, April 9, 2008, 8:00 a.m. – 10:00 a.m.
Toronto, Canada

Is Free Trade Good for Your Health?
American Enterprise Institute Event
Thursday, April 10, 2008, 10:00 a.m. – 12:00 p.m.
Washington, DC

Can We Repair What's Wrong with our Health Care System through Christian Principles?
Acton Institute Event
Thursday, April 10, 2008, 12:00 p.m. – 1:30 p.m.
Grand Rapids, MI
Grace-Marie Turner will discuss how free-market solutions can create a health care system that supports individual freedom over health care decisions.

Whose Healthcare is it Anyway? Understanding the Patient as a Consumer
Yale University Healthcare 2008 Conference
Friday, April 11, 2008, 8:00 a.m. – 6:30 p.m. (Breakfast and lunch included)
New Haven, CT

Private Financing and High-level Functioning: Some International Approaches to Health Reform
Alliance for Health Reform Briefing
Friday, April 11, 2008, 12:30 p.m. – 2:15 p.m. (Lunch included)
Washington, DC

Cracking Down on Killer Drugs: Dora Akunyili and the Nigerian Success Story
American Enterprise Institute Event
Monday, April 14, 2008, 9:30 a.m. – 11:00 a.m.
Washington, DC

The Impact of Health Insurance in Developing Countries: Experiences from China and Colombia
The Brookings Institution Event
Tuesday, April 15, 2008, 10:00a.m. – 12:45 p.m.
Washington, DC

Election Year 2008: Health Care Reform Debate
George Washington University Event
Thursday, April 17, 2008, 6:30 p.m. – 8:30 p.m.
Washington, DC

Consumer Health World Conference

May 4-7, 2008
Las Vegas, NV
Email for a registration discount code.


Health Policy Matters is a weekly newsletter containing summaries of timely and informative studies and articles on free-market health reform. It features a commentary by Grace-Marie Turner on the major developments and issues of the week as well as summaries of writings by participants in the Health Policy Consensus Group and other articles of interest from the health policy world, plus 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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