[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.

      THE ROLE OF MEDICAL PROFESSIONALS AS SMALL BUSINESS OWNERS

=======================================================================

                             FIELD HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                      FREDERICK, MD, JULY 14, 2003

                               __________

                           Serial No. 108-24

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                                 ______

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                            WASHINGTON : 2003
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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)
?

                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Toro, Donalda, Frederick Neurology, LLC..........................     5
Toro, Camilo, M.D., Frederick Neurology, LLC.....................     6
Chung, Elizabeth, Practice Administrator, Stanley Chung, M.D., PA     8
Thomas, Michelle D., M.D., National Medical Association..........    10
Pendleton, James L., M.D., The Association of American Physicians 
  and Surgeons...................................................    13
Scandlen, Greg, Galen Institute..................................    15
Rayford, Linwood, U.S. Small Business Office of Advocacy.........    17
Unger, Christopher Pelham, Travelers Insurance Company...........    19
Sarraille, William A., Sidley Austin Brown & Wood, LLP...........    21

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    33
    Bartlett, Hon. Roscoe G......................................    34
Prepared statements:
    Toro, Donalda................................................    41
    Toro, Camilo, M.D............................................    47
    Chung, Elizabeth.............................................    49
    Thomas, Michelle D., M.D.....................................    52
    Pendleton, James L., M.D.....................................    59
    Scandlen, Greg...............................................    66
    Unger, Christopher Pelham....................................    71
    Sarraille, William A.........................................    73
    Objectivist Center...........................................    81
    Sheppard, Marcia.............................................    92
    Detrow, Kristin..............................................    93

                                 (iii)

 
       THE ROLE OF MEDICAL PROFESSIONALS AS SMALL BUSINESS OWNERS

                              ----------                              


                         MONDAY, JULY 14, 2003

                          House of Representatives,
                               Committee on Small Business,
                                                      Frederick, MD
    The Committee met, pursuant to call, at 2:08 p.m., at 
Winchester Hall in the 1st floor Hearing Room, 12 East Church 
Street, Frederick, Maryland. Hon. Donald A. Manzullo [Chair of 
the Committee] presiding.
    Present: Representatives Bartlett and Christensen.
    Chairman Manzullo. Okay. Good afternoon and welcome to the 
Small Business Committee field hearing here in Frederick, 
Maryland. We will be looking at the issue of doctors as small 
businesses.
    We are in the midst of a health care crisis as the doctors 
are fleeing medicine because they spend less and less time with 
their patients and more time dealing with government 
regulations, excessive paperwork, inadequate reimbursement 
rates, and escalating malpractice insurance. It is little 
wonder that when doctors are forced to deal with all of these 
complications, that they feel they have too little time for 
their patients and their craft. Surveys have shown that doctors 
are doing over an hour of Medicare paperwork for every one to 
four hours they spend with their patients.
    Insurance companies require more and more paperwork from 
doctors' offices before reimbursing them, add to that Medicare 
reimbursement rates frequently do not cover the cost of 
Medicare procedures. Rising malpractice premiums have not only 
driven up the cost of health care, they are driving doctors 
from their practice. Doctors across the country are upset with 
malpractice premiums and some have even gone on strike.
    Last year, I had a field hearing in my home State of 
Illinois to hear from doctors about problems we are 
encountering. An OB/GYN testified to the state of a practice 
with her three colleagues. She explained that after paying 
malpractice insurance of $440,000 a year for four physicians, 
she and another physician made $50,000, a third doctor made 
$60,000, the last doctor made $70,000, and their office manager 
made more then all of them $75,000. Before becoming a doctor, 
she was a pharmacist. She was pursuing pharmaceutical jobs 
because she could make over $100,000 as a pharmacist and didn't 
have to worry about medical malpractice insurance or being sued 
or testifying before congressional committees either.
    We are facing a nationwide crisis today in the delivery of 
medical services.
    [Mr. Manzullo's statement may be found in the appendix.]
    I look forward to the hearing from our colleague, Roscoe 
Bartlett, who is doing a tremendous job. Roscoe and I were 
elected in the 103rd Congress. Roscoe, we look forward to your 
opening statement.
    Mr. Bartlett. Thank you very much. Frederick is my home 
town, in addition to being part of the 6th District of 
Maryland. I am very pleased to welcome my colleagues to 
Frederick, Maryland. Congressman Don Manzullo, and this will be 
an understatement, from Illinois is the Chairman of the House 
Small Business Committee, and he is the most vigorous champion 
of small business in the Congress. Congresswoman Donna 
Christensen is from the Virgin Islands. Congresswoman 
Christensen is also a physician, in addition to her 
conscientious work as an advocate for small business owners and 
the House Small Business Committee.
    We are here today as Representatives of the Congress to 
examine the role of doctors as small business owners and to 
learn whether the Federal Government helps or hurts them.
    We have two panels of witnesses combined here into one. The 
first panel of witnesses features doctors and private practice 
managers from the local region who will share their personal 
experience as they work to take care of sick people and provide 
a living for themselves and their families.
    No one ever wants to be sick. However, illness and 
accidents are a part of life. As we sit in this room there is a 
growing epidemic spreading across America. I am not talking 
about SARS or any other contagious disease. We all hope that if 
an when we become sick, there will be a skilled, trained and 
compassionate person to take care of us. When it is beyond the 
capability of ourselves and family members, we turn to doctors. 
A web of Federal regulations, reimbursement cost shifting and 
malpractice lawsuits are combining to make it more difficult 
for doctors in the United States to do what they want to do and 
what we expect them to do, to take care of us when we are sick.
    There are two big lies that are contributing to a growing 
national shortage in private practice physicians in the United 
States.
    The first big lie is the check is in the mail. When was the 
last time any of us went to a doctor and paid them for their 
work? Many of us with insurance or an HMO are required to pay 
between $5 and $30 that is a co-payment or partial payment. 
What happens to the rest of the cost? I wonder. Months later I 
receive one of these notices from my insurance carrier marked 
``Explanation of Benefits--this is NOT a bill.'' these complex 
documents usually list an amount billed by the doctor. Another 
line will have the ``allowable'' amount. What is that? It is 
always significantly lower than the billed amount. Then there 
might be a line for the co-pay I remember giving the doctor at 
the appointment. Sometimes there is a line labeled 
``disallowed'' on the form with an impenetrable footnote. 
``amount of deductible satisfied.'' finally, at the bottom 
there might be a line ``patient's responsibility.'' 
occasionally, I do receive a bill from a doctor that I promptly 
pay. None of this paperwork makes any sense me as a patient or 
Member of Congress. What does it mean to the doctors who care 
for me?
    We will learn today that in addition to the receptionist 
who greets us and nurse we see in the examining rooms, doctors 
must employ practice managers and accountants and other 
assistants. We do not see these people and they do not provide 
any health care to patients. However, private practice doctors 
would not be in business without them. These employees of solo 
and small group medical practices spend all of their fighting 
with third-party payers to reimburse the doctors. These third-
party payers are Medicare and Medicaid in the public sector or 
government. In the private sector, it is the insurance 
companies or HMOs that are the third-party payers. Whether 
private or public, these gigantic bureaucracies operate to 
achieve one purpose, to deny or delay paying doctors for the 
work they do in caring for me. None of this makes any sense to 
me. Does it make sense to doctors? We will listen to their 
experiences today.
    There is a second big lie. That is I am from the Federal 
Government and I am here to help you. The Federal Government is 
supposed to improve old people's health through Medicare and 
provide health care through Medicaid. There are now thousands 
of pages of Federal regulations under Medicaid and Medicare. Do 
these Federal Government regulations help or hurt the ability 
of doctors to treat our old and our poor when they are sick?
    To quote from a popular book title, American society and 
culture used to accept the fact that ``bad things happen to 
good people.'' this acceptance has been replaced with the 
expectation if something bad happens, it must be because 
someone made a mistake. Now, there is the unreasonable 
expectation that a doctor can and must save or improve our 
lives, and if that doesn't happen, it is because the doctor 
made a mistake. And if the doctor made a mistake, then they owe 
us for this failure.
    This is how one doctor in Frederick described what he faces 
every day in an e-mail to me.
    ``I have grown weary of feeling every patient that I see is 
a potential lawsuit. I work very hard. I try very hard to do my 
best. I am always concerned for the well-being of my patients. 
I don't know of any other profession that is exposed to the 
liability physicians have. I feel that I am caught between the 
proverbial rock and a hard place--patients whose expectations 
are absolute answers to their concerns (which are often not 
possible), but require many tests to evaluate and economic 
pressures to control medical cost. Where does it end? As 
physicians we take the information that patients give us and 
try make sense of it, but this does not always work out. It 
doesn't mean that there was a mistake. Sometimes bad things 
happen because they happen.'' and this was the end of his e-
mail.
    The June 9 issue of Time magazine included a 12-page 
feature entitled ``The Doctor Won't See You Now.'' it noted, 
``the soaring cost of malpractice insurance is becoming a worry 
for everyone, especially patients who see their doctors move 
away, change specialties or quit medicine altogether.'' this 
hearing offers an opportunity to explore the impact of medical 
malpractice lawsuits and insurance costs on the ability of 
doctors to care for sick people.
    Regulations. Reimbursement. Lawsuits. Up until recently, 
being a doctor used to be a noble and well-paid profession. 
Today the obstacles that a doctor faces should make us all 
sick.
    Our second panel of witnesses, combined with the first, has 
the unenviable task of examining the mess that we have got and 
trying to provide recommendations for improvement.
    Welcome to the hearing today.
    [Mr. Bartlett's statement may be found in the appendix.]
    Chairman Manzullo. Dr. Christensen.
    Mrs. Christensen. Thank you, Mr. Chairman. And it is a 
pleasure to be here with you for the hearing. I want thank you, 
particularly, for holding this very important hearing and for 
giving me the opportunity to have a representative from the 
National Medical Association, who I will introduce later, join 
us on the panel. I think any time that we have the opportunity 
to hear from our physician community, it is really important to 
have as broad and as full a picture as possible. So I want to 
both thank you and Chairman Bartlett for making this possible.
    Also, glad to see the Office of Advocacy here with us 
today. This Committee and the Office of Advocacy has had a very 
good working relationship. I think we have been able to make 
some changes in CMSS, and I look forward to having the 
Committee work with you on some even further issues.
    My particular interest today, and I am sure there they will 
be covered by our panelists, provider payments, HIPAA, 
malpractice and the impact of the uninsured, all of which are 
creating calamity in the provider community and threatens a 
real catastrophe for the entire health care delivery system. 
One of the reasons I felt it was important for Dr. Thomas to be 
here is that African-American physicians and other physicians 
of color are even more severely being impacted. And you would 
think that in a physician community we--there is a saying that 
``when the majority in a community gets a cold, people of color 
get pneumonia.'' you would think the physician community would 
be immune from that, but they are not. So they are really being 
severely impacted. I just want to look forward to everybody's 
testimony and to the guidance that you will, hopefully, leave 
with us as we move on from here to tackle some of the important 
issues on which you will touch.
    So I want to welcome everyone, and I thank you, again, for 
the opportunity to be at this hearing.
    Chairman Manzullo. Thank you. The rules are--we don't have 
a time clock in front of us, but it is five minutes on 
testimony. And there is a reason for that, because we do have 
votes later on this afternoon, plus, we want to move it and get 
lots of questions going now.
    When Piper raises this, that is four minutes have expired. 
That means you got to finish in a minute. So what I would 
suggest is we all know that you are glad to be here, but you 
don't have to make that part of your testimony. Get immediately 
to the meat of your testimony, and don't waste time, like the 
politicians before you have, getting this started.
    So I would first turn to first witness is Donalda Toro, and 
we look forward to her testimony. We you want to talk into the 
mike right there.

    STATEMENT OF DONALDA TORO, PRACTICE MANAGER, FREDERICK 
                 NEUROLOGY, LLC, FREDERICK, MD

    Ms. Toro. Today the entire medical establishment is in 
crisis. Working as a physician in private practice is nothing 
short of abuse. As the wife of a physician and working as a 
practice manager, I speak from both a professional and personal 
perspective. I am responsible for negotiating insurance 
contracts, billing, posting payments, collections and accounts 
receivable and human resources. I manage the business as well 
as the family.
    My husband has built a very successful neurology practice 
with over 4,000 patients. His schedule, as well as that of his 
associates, are booked two months in advance. Dr. Toro is well-
respected throughout the community by his peers and patients. 
However, from a financial point of view, our business looks 
sluggish to grim. Commercial insurance companies and Medicare 
reimburse 20 to 50 percent of the bill charges; that is our 
charges. The RBRVS system, which is a resource-based relative-
value scale, an algorithm used to assess value of work in units 
of medical care such as procedures and interventions, is 
totally ignored by the insurance companies. Therefore, 
physicians are only paid a small percentage for the work they 
do. There is not a billing code for consulting with family of a 
patient, doing the patient billing, long distance calls, 
calling in prescriptions, time spent coordinating patient care 
with other physicians, telephone consults with patients. On an 
hourly rate, my husband makes about as much as a ditch digger. 
I mean, a lot of people are shocked by this, but it is the 
truth.
    Commercial insurance companies refuse to pay more than 
Medicare rates because insurance companies consider Medicare 
rates the standard. In fact, some pay--many of them pay less; 
Aetna pays less than Medicare. Insurance companies take their 
time in paying the claims, or they deny they received the 
claims or they refuse the pay the claim. Once a claim is denied 
for payment, I must pull the records and write an appeal for 
payment. I spend most of my time writing appeals more than I do 
billing. Once I submit an appeal, it takes four to six weeks 
before I receive a response. I have appeals that have been 
overturned to be paid by Blue Cross and Blue Shield of 
Maryland, but they haven't been paid in over two years, and I 
will still continue to follow up on them. If the insurance 
company overpays a claim, they quickly demand payment in full 
or the payment will be deducted from their next member or the 
next, if it is Blue Cross and Blue Shield, the next patient.
    It takes a great deal of intelligence to become a 
physician, however, it takes a very different type of 
intelligence to successfully manage a business. Physicians are 
not business people. In fact, the psychological makeup of a 
physician is contrary to that of a business executive. 
Physicians are more concerned with saving the patient's life or 
improving their quality of life. A business executive is really 
just concerned about the survival of the business and receiving 
payment in full before the services are rendered. If a 
physician had earned an MBA after medical school, business 
school would teach them to practice medicine on a volunteer 
basis and choose a more lucrative business to make their living 
and repay their school loans.
    In order for a small practice to survive today, the 
commercial insurance products must be limited, and under no 
circumstances can a provider accept an HMO or Workers' 
Compensation. These products are sudden death to a practice. A 
physician with business savvy would not accept commercial 
insurance, only fee for service. In other words, payment in 
full would be expected at the time of service. Medicare rates 
are a pittance and it would make sense to not participate with 
Medicare, but the physician could accept the Medicare rate plus 
5 percent and the office would send the claim directly to 
Medicare for the patient to be reimbursed. However, if a 
provider does not participate with Medicare, he would not be 
permitted to be on staff at the hospital, which is really to 
their advantage because the hospital is where the physicians 
incur most of the bad debt. A physician in our community uses 
the business model I just described and seems quite happy 
practicing medicine.
    Chairman Manzullo. You have one minute.
    Ms. Toro. Practicing medicine seems to fit the definition 
of a minister rather than a business. I don't know any other 
small business that can function without payment when a service 
is rendered.
    It is hard to picture going to the grocery store with a 
cart full of groceries and meeting a third-party at the check-
out counter as you observe them negotiating payment of 20 to 50 
percent of what the groceries are worth, or possibly going to a 
restaurant and walking out without paying their bill and 
letting the manager know you will be happy to send them $5 a 
month until the bill is paid. That being the case, a small 
business would not survive or telling the manager, you have 
been stiffed again, and I have no intention of ever paying your 
bill.
    Today I ask you to take small practices and give them a 
nonprofit status instead of a for-profit status that we 
currently have. After all, CareFirst and Blue Shield of 
Maryland have a nonprofit status. And according to an article 
in the Saturday May 17th issue of the Frederick Post, the 
nonprofit health care company reported in the first quarter--
--.
    Chairman Manzullo. It is not necessary to read your report. 
Your complete statements will be made part of the record. And, 
I mean, you are here because you got some problems and some big 
problems. Just speak from your heart. It is not necessary.
    Ms. Toro. So many of them, it is hard to narrow it down. It 
really is.
    Chairman Manzullo. You are in a very unique position.
    [Mrs. Toro's statement may be found in the appendix.]
    Chairman Manzullo. Our next witness is Dr. Camilo Toro, 
neurologist. And we look forward to your testimony.

   STATEMENT OF CAMILO TORO, M.D., FREDERICK NEUROLOGY, LLC, 
                         FREDERICK, MD

    Dr. Toro. Thank you. Most of my testimony has been 
summarized by my wife and Congressman Bartlett, but I want to 
basically express my feeling of frustration with the medical 
system and how that feeling is universal.
    When I speak to my colleagues in the hospital and other 
physicians, it is a universal feeling that the medical 
community at large is extremely frustrated and disenchanted 
with the practice of medicine. I like to use the analogy of 
what physicians do by making the case of the health care system 
kind of akin to the space program. You know, we are like the 
engineers that create these incredible projects of taking our 
citizens from birth to their death, and our mission is to 
really take our citizens through the journey in a way that is 
healthy and happy. And there are many professionals involved in 
delivering this mission, but physicians remain, really, the 
main engineers that handle the knobs and controls in this giant 
vessel.
    One would think that in kind, society would compensate 
their committed professionals with recognition, respect and, to 
some degree, financial stability. In reality, that has changed. 
At this point, these aims of society have been changed by 
constant financial uncertainty, incredible personal and family 
hardship, and a constant fear of litigation that undermines, 
really, the financial objective of the practice of medicine.
    The American Academy of Neurology, to whom I am a member, 
estimates that in the year 2000, the mean salary for 
neurologist was in the order of $160,000 a year. I find that 
figure, actually, personally, pretty hard to believe. I 
certainly make much less than that. I don't believe that I can 
work any harder than I am already working, unless I begin to 
practice bad medicine, fast medicine, or some form of illegal 
practice of medicine. In the end, a salary of $160,000, when it 
is placed into perspective as to the number of hours worked per 
day, the amount of weekend and nights on call, four years of 
college, four years of medical school, and four years of 
neurology training, and most likely two years of fellowship, in 
total 14 years of medical training, plus whatever experience, 
it comes to a salary that is in the range of $50 an hour.
    A very ominous sign of how medicine is evolving can be 
gauged by the content of the medical society meetings. Medical 
society meetings are conceived to be the instrument of 
providing updates and to bring their physicians up to speed 
with new advances in technology. Turns out that in the last 
five years or so, most of the medical society meetings have 
begun to be inundated with a number of conferences and topics 
that now have become continuing medical education whose titles 
will mimic what I am going to say: Surviving a Medicare Audit, 
Coping With Litigation, 10 Most Frequent HIPAA Pitfalls, 
Getting Paid, Collecting on Insurance, et cetera, et cetera. So 
many of these societies have introduced these topics as part of 
their curriculum simply with the purpose of allowing this 
practice to survive but no longer have any relevance to 
actually the practice of medicine.
    The reduction in physician reimbursement has probably very 
little impact in the skyrocketing cost of health care. I 
propose that a demoralized, underpaid, overworked and motivated 
physician fearing litigation is much more likely to practice 
defensive medicine, overutilize expensive, necessary services 
compared to a physician that feels that his work is remunerated 
in a commensurate way to his skill and effort. I hope that with 
this meeting we can provide some answers to these questions.
    [Dr. Toro's statement may be found in the appendix.]
    [Additional material submitted by Dr. Toro for the record 
is retained in the Committee's file.]
    Chairman Manzullo. Doctor, the purpose of these field 
hearings is to create public policy. It is to educate not only 
Members of Congress, but the public as a whole, that the 
medical profession needs tremendous assistance and that things 
in this country are going to change dramatically unless we 
address those issues. So we really appreciate you taking the 
time.
    Our next witness is Mrs. Elizabeth Chung who is a practice 
administrator, and we look forward to your testimony.

   STATEMENT OF ELIZABETH CHUNG, PRACTICE ADMINISTRATOR FOR 
               STANLEY CHUNG, M.D., FREDERICK, MD

    Mrs. Chung. Thank you, Mr. Chairman. Good afternoon. I will 
just use one minute, I hope, to summarize my write-up, but at 
the same time, I will use four minutes to speak from my heart 
as the wife of a physician that has so many of the issues that 
have been addressed.
    As an orthopedic doctor, first of all, this is my husband's 
second career. He was working in engineering and changed his 
mind. He wanted to be a good old country doctor and get away 
from politics, but he was dead wrong after only one year.
    The first problem is in terms of public policy, probably 
should look into helping us in terms of running a small 
business is the first thing, because we really have to find a 
way to find any kind of services that could help to us start a 
new business, but again, it costs very much to do so.
    The issues that I have are five: One is cost schedules. My 
husband works 10 to 11 days a month on call out of which five 
to six days are in the emergency room at the Frederick Memorial 
Hospital, which means that we are seeing 20 percent of the 
orthopedic patients who went through the emergency room in each 
month. And why is it important? Because out of the ER, we have 
a lot of uncompensated care. The uncompensated care came from 
indigenous patients and comes from uninsured patients, comes 
from Worker's Comp sometimes the employer did not want to pay 
because they argue with the employer and employees. And also we 
have contract and labor, which is very important issue to look 
at because they work on the job, they get hurt, they went to 
emergency room, we treat them and then we never see them again. 
And also the other thing, medical assistance patient, again we 
don't just treat patient from Frederick County, we treat 
patients from Prince George's County, everywhere because they 
know that there is a good doctor in the ER that can take care 
of them. Frankly, that is the only way sometime for our 
indigenous and also uninsured patient to get medical care.
    The other one is the automobile with the liability, they 
got the money, they put the money in the pocket, and they said 
they deserve the money, they don't want to pay the doctor. They 
file bankruptcies.
    So the major issue, besides the uncompensated care, is also 
our out-of-pocket care. My husband never look at whether they 
get paid, whether he has insurance or no insurance to take care 
of patient. So we treat them. We operated on them. And yet what 
happened? If they call the office, we see them. We see them. We 
treat them well until they are clean bill, really. So what does 
that mean? Casts, crutches, X-ray, all kinds of material. We 
have out of pocket. So it is not just we are not getting paid 
for his professional time, expertise, we are taking money out, 
hundred and hundred and hundred of dollars to cover care for 
those who need help. That is one thing that my husband said, 
make sure, let the Congress hear about that. We are also 
providing, subsidizing the medical care to our needy elderly.
    The administrative nightmare that I won't to go into a lot 
of detail because I have ten different items, but several 
things I want to bring up. And one is that we have unqualified 
staff at the company, insurance company, to tell us that the 
doctor should not do this or doctor should not do that. And 
this is very ridiculous. This is individualized. We have to 
make the best decision, what is good for the patient. Is it 
better to take the patient back three or four times so we can 
send our claim in three our four times separately? So we can 
get paid more? No. We need to be conscientious, we need to be 
ethical about that.
    Second thing is the bundling of claims, packing the claims 
so they can reduce a payment. And we tell them this is a 
distinctly procedure hoping that we can get paid at least 100 
percent, but they still come back discounted. They have all 
kind of games. If you don't know the rules, don't know the 
game, you can't play with them. One thing that is ridiculous. I 
will show it to you. My son was hurt four and a half years ago. 
Fractured his leg. Daddy took care of him with an X-ray, it is 
true and real. And four and a half years later, last Friday, I 
got a bill from my insurance company requesting money back from 
the doctor, who is his daddy. Okay. And basically, to have a 
job this is ridiculous. I guess it is to take my son to the 
emergency room would be better.
    Medicare. Medicare patient is very important to us. It is 
growing 18 percent of the population, 25 percent of ER patient, 
and yet, do you know that Frederick, many of the primary care 
physicians are not taking new patient anymore? They are not 
taking Medicare patient. They go into the emergency room for a 
simple condition.
    So this is the Tom Brokaw greatest generation, folks. So 
when you take care of them, the small business people, how can 
they take care of them when they cannot even afford a business 
manager, a biller? I do practically a lot of things for my 
husband's office. My husband work, my husband work more than 80 
hours a week. I am a single mom, and my husband went through 
litigation at one time, and you don't want to see it, five days 
in the court room, 140 degree temperatures. We lost the case. I 
was so afraid he might commit suicide literally. You know, this 
is ridiculous because premeditated, the lawsuit is in the run 
with a lot of situations in here. Do you want my son to be a 
doctor? Do you think I want him for a doctor? I am afraid, you 
know. So we have two doctors in our practice and other 
associate, Yale graduate. Now, they went to Wall Street. They 
went to law school. That is where the children went to after 
putting them through orthopedic training and medical school. So 
I am asking that please if you can help out the saving and loan 
bank, help out the airline industry, why not help us too? We 
need some tax relief. That's what I am asking. Tax relief. Give 
me some, a few thousand dollars so I can write them off, so I 
can, you know, do something. I can give it to my community 
organization because that is where my passion is. I want to 
help the poor, but I want to make sure the money is in the 
right places.
    Thank you very much.
    Chairman Manzullo. We thank you for your passion. It is 
obvious that you live this 24/7. We appreciate that very much.
    [Ms. Chung's statement may be found in the appendix.]
    Chairman Manzullo. Congresswoman did you want to the 
introduce the next witness?
    Mrs. Christensen. Thank you. We often have the opportunity 
if we have a special relationship with a witness, to be able to 
introduce them. I am pleased to introduce Dr. Michelle Denise 
Thomas. As a former board member and Regional Chair of the 
National Medical Association, it is especially an honor, as she 
is the President of the Maryland NMA State affiliate, and she 
practices intensive care and critical care medicine in 
Maryland. She is a graduate of Vassar College, received her 
M.D. from Rutgers Medical School. She holds many board 
certificates, including she is a Diplomat of the American Board 
of Surgery, and she is a producer and host of Health Access on 
Public TV channel 76 and a Health Correspondent on the news for 
Channel 76. So it is a pleasure. I am glad you are able to come 
on such short notice.

    STATEMENT OF MICHELLE D. THOMAS, M.D., ON BEHALF OF THE 
               NATIONAL MEDICAL ASSOCIATION (NMA)

    Dr. Thomas. Thank you. Good afternoon.
    I have been asked by Dr. L. Natalie Carroll, President of 
the National Medical Association to represent the concerns of 
her constituents and 25,000 African-American physicians and the 
patients they serve. I am the President of Maryland State NMA 
affiliate organization. I am a surgeon and critical care 
medicine specialist. I have a small surgical practice.
    I am a member of a five-physician critical care group 
organized as an LLC, I a do critical care. With respect to Tort 
Reform, the National Medical Association is committed to 
quality health care, the elimination of health disparities and 
access for all citizens and immigrants communities to health. 
We believe that if an individual patient is injured or 
victimized by a negligent physician, there should be legal 
redress and compensation. We do believe that Tort Reform is 
necessary to preserve the economic viability of physician 
practice. I have, over the past 12 years, worked in hospitals 
and communities throughout Maryland including Cumberland, 
Hagerstown, Carroll County, Baltimore County, Baltimore City, 
Prince George's County, Montgomery County, Anne Arundel County, 
as well as our Nation's capital, the District of Columbia.
    I am in contact with physicians in urban and suburban and 
rural areas of Maryland and the national crisis in medical 
liability is taking its toll on health care providers both 
professionally and personally. There is no high-risk obstetric 
care on the Eastern Shore of Maryland due to the high cost of 
malpractice insurance. In 1995, there were 14 companies 
underwriting medical malpractice insurance. In Maryland today, 
there are three companies providing insurance, Medical Mutual 
Liability Insurance, Society of Maryland, covering the majority 
of physicians. Please see Attachment A it is a copy of the 
Maryland OB/GYN Society Survey on Professional Liability, 
conducted in February 2003, which in brief states: If 
malpractice premiums increase by 25 percent, 34 percent of the 
surveyed respondents could stop practicing medicine all 
together. The worsening professional liability environment, 
coupled with declining reimbursement for service, suggests that 
the impact on women's and infants' health outcomes will be 
negatively impacted. This will be across the board in other 
medical specialties. Med Mutual Insurance informed on July 2, 
2003, that it filed with the Maryland Insurance Administration 
a proposed rate increase of 28 percent. The National Medical 
Association endorses Tort Reform policy with emphasis on: 
Collateral source rule, contingency fees for plaintiffs 
attorney, periodic payments, limits on noneconomic damages, 
limits on statute of limitations and qualification of expert 
witnesses.
    Attachment B is our health policy brief on medical 
liability reform.
    To speak about bureaucracy, bureaucracy is defined as a 
system of administrations marked by officialism, red tape and 
proliferation according to Webster's. Physicians, whether they 
are employed by hospitals, managed care organizations, or self-
employment in small or large medical practices, must traverse 
nongovernmental and Federal and State bureaucracies.
    Medicine is a highly regulated industry. We are licensed, 
credentialed, insured and monitored. The time spent on 
administrative paperwork is approaching 40 to 50 percent of the 
workday for small practices. The Health Insurance Portability 
Act, HIPAA, does feel like an 8,000-pound hippopotamus to me. 
There has been a deluge of HIPAA compliance information 
services, compliance products which have just added another 
expense item to the cost of medical practice. We do believe 
there is some value to HIPAA in the long term, but the spectre 
of penalties and large fines and imprisonments for violations 
has small practices and particularly minority physicians 
concerned that they will be unfairly targeted. This is partly 
due to the individual experiences with the correct coding 
initiatives, and audits.
    The Health and Human Services Order 13166, which requires 
health providers to offer translating services to non-English-
speaking patients, is unaffordable for small practice. We all 
would like to provide that, but it is unaffordable. There are 
some examples listed here in terms of our frustrations with 
government, private insurance, and managed care corporations in 
obtaining authorization and treatment reimbursement.
    Profitability and solvency of small medical practice. The 
value of health, that is being of sound mind, body, and spirit, 
free of disease, is dear to us all. The art and science of 
medicine once was a noble profession. Today many struggle to 
sustain their medical practice. Personally, I can say my small 
search for practice is not profitable and barely solvent. 
Antitrust regulations prohibit me from joining other small 
practice groups to negotiate fees----.
    Chairman Manzullo. You have a minute.
    Dr. Thomas. It is difficult to obtain fee information, 
profiles. My initial fee schedule for medical service was 
established in 1993 based on a geographic adjustments factor in 
Hagerstown. When I moved it Prince George's, that was adjusted 
up to 1.042. Today my, reimbursement is 30 to 40 percent of my 
fee schedule set in Hagerstown in 1993.
    I and a majority of NMA physicians' constituency accept 
Medicare and Medicaid patients in addition to a large 
proportion of uninsured patients. This health care disparity 
exists in the country and the general health of our Nation will 
worsen if small medical practices are not profitable.
    Chairman Manzullo. You have a shortage of time, Doctor.
    Dr. Thomas. One last statement please. The impact of the 
uninsured on small medical practices. There are 41 million 
uninsured individuals in the United States. Not all uninsured 
are poor. However, the majority of uninsured are of modest to 
low income, especially among those of African American, 
Hispanic and minority communities. According to the latest 
figures released by the U.S. Census Bureau, over half of all 
uninsured are Asian, African American, or Hispanic. More than 
6.5 percent of Hispanic and African Americans report they have 
unmet medical needs compared to 5.6 percent of Caucasian 
Americans. The Department of Health and Human Services report 
that communities of color experience serious disparities in 
health care access and outcomes in six areas: Stroke, heart 
disease, diabetes, infant mortality, cancer, and HIV/AIDS.
    Insurance coverage income and available safety net services 
contribute to the health care disparities.
    A small medical practice's costs shift when they provide 
uncompensated care. Charitable care becomes more burdensome for 
physicians as third-party reimbursement rates remain low and 
practice expenses increase.
    Chairman Manzullo. I will have to----.
    Dr. Thomas. I just have two sentences.
    Chairman Manzullo. But I really--I want to get through the 
witnesses because we have to have time----.
    Dr. Thomas. I have two sentences, Congressman, if I am 
allowed to.
    Chairman Manzullo. Okay.
    Dr. Thomas. If my panelists would allow me.
    Chairman Manzullo. I really have to push you because I 
want----
    Dr. Thomas. I will.
    Chairman Manzullo [continuing]. to get through with the 
testimony and have time for questions. Then we have to leave to 
get back to vote.
    Dr. Thomas. I understand, and I appreciate the privilege. 
Prevention services are cost saving for both children and 
adults. Expanding insurance would do more to improve access for 
the uninsured across all communities. For the small and large 
medical practice, hospital, or clinic, something is better than 
nothing. The fundamental truth about health care industry is 
that it is difficult to profit on delivery of health care to 
people who are ill.
    I thank you for the privilege.
    [Dr. Thomas's statement may be found in the appendix.]
    [Additional material submitted by Dr. Thomas for the record 
is retained in the Committee's file.]
    Chairman Manzullo. I am going to have to insist on the 
five-minute clock. There is a reason for that because I have 
got a chairman's meeting back in Washington. We have leave time 
for questioning. Your testimony is all made part of the record. 
And what I would suggest is take the highlights of your 
testimony, tell us your story. Because we will read everything, 
and it will be part of the record. It will be published.
    Our next witness is--and thank you for your testimony, 
Doctor. Our next witness is Dr. James Pendleton with the 
association of American Physicians and Surgeons. I look forward 
to your testimony.

 STATEMENT OF JAMES L. PENDLETON, M.D., EMERITUS, PSYCHIATRIC 
    STAFF, ABINGTON MEMORIAL HOSPITAL AND MEMBER, BOARD OF 
 DIRECTORS, THE ASSOCIATION OF AMERICAN PHYSICIANS AND SURGEONS

    Dr. Pendleton. Thank you, Mr. Chairman.
    In 1965, health care cost 5.9 percent of the gross national 
product. The poor saw physicians slightly less often but were 
hospitalized slightly more days than the middle-class and the 
wealthy. Blue collar families could pay for appendectomies, 
hysterectomies, deliveries, and most other surgery. The Kerr 
Mills Act had been passed in 1960 to pay for the elderly poor. 
Reportedly the average doctor contributed about 20 percent of 
his time to caring for people who could not pay part or the 
full fee.
    My father-in-law, a general practitioner in Akron Ohio, saw 
his first--the initial patient visit was an hour and subsequent 
visits were 20 minutes. I understand the time now is seven and 
a half minutes. Let me show the first of these slides. And 
things were good enough at that time that when the Medicare/
Medicaid Act was passed, the Congress said the following in 
other words: That there would be no control over the practice 
of medicine, the finances, the administration, or anything. And 
actually, what is the case now is that laws are all over our 
practices from start to finish. And one of the controls, of 
course, is essentially price controls with Medicare, not 
Medicaid, but the managed care and the Blue Shield. I won't go 
into what is going on except to say my area of southeastern 
Pennsylvania is one of the hardest hit areas. I suffered a 
serious accident on a bicycle and was admitted in Trenton, New 
Jersey because the trauma unit in Langhorne at St. Mary's 
Medical Center was closed because they had no neurosurgical 
coverage for the weekend. If there had been bleeding in the 
brain, there could have been death or extensive neurological 
damage.
    The number of applicants to medical school has been 
decreasing steadily for the last several years. And as one 
college counselor said, the best students are no longer going 
into medicine. Counsel for AAPS, the organization for which I 
work, on which I am an unpaid member of the board of directors, 
our counsel, Andrew Schlafly has admitted, submitted written 
testimony along with mine, that I can't cover either of them 
but his case histories are very interesting and important as to 
prosecutorial abuse of physicians. It is amazing some of the 
things that those people who are looking to make a name for 
themselves do and get away with.
    Between 1965 and 2003 about which have you been hearing, 
the doctor--planners wrote repeatedly that the doctor, not the 
patient, was the consumer. That the market couldn't work in 
medical care because of insurance. That the patient couldn't 
make the complex decisions required of medical care to balance 
quality--value and cost to themselves. Although none of this 
was true, patient money was almost entirely removed by lower-
dollar coverage and the billing of the doctor was hidden from 
the patient. Those situations have created a tremendous lack of 
accountability. And insurance and government inspectors can't 
match what a patient with money in his or her hands will do in 
inspecting the doctor, and they are not identified, and they 
don't warn you that they are coming in. I would say that more 
than half of my practice certainly--and I was a psychiatrist--
would know quite well what was happening with their money if 
their money was involved.
    Chairman Manzullo. We have a minute left.
    Mr. Pendleton. Wow. Okay. Not much time, is there? This 
shows, these statistics are from 1946 to 1976. That shows the 
increase of a hospital stay going up from 1966 where Medicare 
came into effect. I used the same principle, these data are--
the green line is the projection from 1950, not shown here, to 
1991. That level is 8.9 percent of the gross national product. 
The actual level at that time was 13 percent. I calculated very 
roughly the amount between the red reality lines and the 
projected line from 1950 to 1966, and that represents $1 
trillion, $225 billion difference in the projection from before 
the time of the entrance of Medicare, Medicaid, and low-dollar 
coverage. I won't have time to go into that. And I won't bother 
with that.
    What I would say in what should be done, the most important 
thing that Congress could do is to--and the House did this--is 
to remove the crippling restrictions from tax deferred medical 
savings accounts and make them permanent. We have to bring the 
patients' money back so they become the inspector, not someone 
from a bureau or somebody from an insurance company. The doctor 
has a lot more trouble, emotionally and practically, cheating 
his patient than when they try to do it with the insurance 
company. I have about three things to say.
    Chairman Manzullo. I know. How are you doing on time?
    Mr. Pendleton. You are trying to remove the regulations and 
I am really appreciative. I don't think you can do that until 
you bring money and the market back into the patients' hands so 
they have an account and they are paying and they are watching. 
We are going one of two ways toward total government control, 
more of this same or back to the market. I hope you will go 
that direction. Health insurance should be selected and owned 
by patients and noncancellable except for failure to pay the 
premium.
    Tort Reform companies are a necessity in our State. It 
looks like that won't happen for at least 10 years. Abuse of 
physicians by prosecutors should be reigned in by Congress. The 
FDA should evaluate safety only, which would cause far less 
delay because clinicians would soon find the efficacy without 
significant cost.
    Dissatisfaction with managed care, as I mentioned, means 
that we are at a crossroads. I hope we take the direction back 
to trust the patient. They can understand. I saw two 
psychiatrists lose their practices because they didn't give the 
care that they should have to the patient. They didn't cheat 
them, but it was not--and one made his home with the hospital 
and the other made his home with first one managed care and 
then another. The patients are smart. They run the whole rest 
of the economy. They are enough of them to keep us under 
discipline.
    Thank you very much.
    [Dr. Pendleton's statement may be found in the appendix.]
    [Additional material submitted by Dr. Pendleton for the 
record is retained in the Committee's file.]
    Chairman Manzullo. It is not hard to realize that Dr. 
Pendleton has a minor in political science at the University of 
Pennsylvania in 1953. I thought that was interesting you go 
from political science undergraduate to an M.D.
    Mr. Pendleton. I am a slow learner. I went into premed 
later but I took philosophy and hard science.
    Chairman Manzullo. Our next witness is Greg Scandlen. He is 
the Director for Consumer Driven Health Care at the Galen 
Institute. And we look forward to your testimony.

   STATEMENT OF GREG SCANDLEN, DIRECTOR, CENTER FOR CONSUMER 
              DRIVEN HEALTH CARE, GALEN INSTITUTE

    Mr. Scandlen. Thank you.
    Dr. Pendleton gave me a wonderful segueway into my own 
views which are essentially that health care has got to be 
about the patient. The hospitals, physicians, nurses, insurance 
companies, all the rest should be measured only on how well 
they serve the patient. If they don't do a very good job, they 
should be forced out of business. If they do a good job, they 
should prosper. But only the patients can ultimately express 
their views. How well a patient is served is ultimately the 
judgment of the patient. Unfortunately, in today's health care 
system, patients control only 15 percent of total national 
health expenditure, total health spending. That goes down every 
year. In 1965, it was about 56 percent, and are we seeing a 
growing drop-off of the influence of patients over controlling 
their own resources.
    Now, I polled a number of physicians before coming here, 
and they told me there are four issues, which won't surprise 
any of you: Inadequate reimbursement, excessive regulation, 
administrative burdens and a tort system that is completely out 
of control. Virtually all the physicians I talk to say that 
that is what is plaguing them in today's health care system.
    It seems to me that these problems can be addressed in two 
ways. You could roll back some regulations, you could increase 
reimbursement, you could do some tort reforms and that would be 
a very good thing. However, the next Congress or the next 
administration will be right back to the same old place cutting 
payment, increasing regulations. So it will be an endless tug 
of war between the regulators and the deregulators, between the 
thrifty appropriators and the generous appropriators, and it 
strikes me that that is not the most effective way of going.
    And I would come back to what Jim was saying where if you 
want permanent change in the system, you have to re-empower the 
patient. You got to put the resources and the decision-making 
authority back in the hands of the patient. You have already 
taken some steps in this direction: In 1996, medical savings 
accounts, which were just a very little baby step, but it was 
important nonetheless. The Internal Revenue Service put out 
guidance on health reimbursement arrangements a year ago. The 
President has proposed tax credits in association health plans. 
Those would be good steps in the right direction. The self-
employed are already allowed to deduct 100 percent of their 
premiums. Again, that is a small step, but an important one in 
the right direction. There is health savings accounts, which 
are basically an expansion of the medical savings accounts in 
the House Medicare bill currently. That would be valuable.
    At the same time that Congress and the administration are 
working on these developments, the private sector is absolutely 
booming with consumer-driven health care. The level of 
innovation and new ideas that are happening in corporate 
America and within the insurance industry trying to put more 
control in the hands of patients is astonishing, and the 
medical profession is also moving in that direction. 
Increasingly physicians are refusing to take managed care 
payments, and they are refusing to enroll in managed care. They 
are not taking new Medicare patients, or they are dropping out 
of the Medicare program entirely. They are creating programs 
like SimpleCare, which operates on a cash only basis. The 
patient comes in, pays cash for the service, and the patient 
can bill his insurance company if he has coverage. There is 
boutique medicine. There is so much happening out in the 
community, and I hope to God that Congress will stay in touch 
and stay aware of all of these developments and help facilitate 
them rather than getting in the way.
    The four issues of most concern to physicians and how that 
will be affected by more empowering patients, first of all, on 
the reimbursement side, one of the horrible things we are 
paying is that all docs get paid the same regardless of how 
good they are. The kid right out of medical school gets the 
same level of payment as Dr. Pendleton would. It makes no sense 
to do it that way. We talk a lot about quality, but we are not 
willing to pay for it. If patients controlled their own 
resources, they would be willing to pay more to get the very 
best quality service and less for mediocre service.
    Excessive regulations. Most of the regulations are aimed at 
correcting the problems created by a third-party payment 
system.
    Administrative burdens. If we could move more of the 
payment system into a cash basis and process less through 
third-party payment mechanisms, it will be far more efficient 
and less burdensome for doctors.
    And malpractice. We have got to restore the level of trust 
between physicians and patients. The only way to do that is to 
restore the patients to a position of power in their 
relationships with their doctor. I think malpractice would 
quickly go away even without tort reform if we did that.
    And then finally, I think the system would be self-
correcting with empowered patients. We wouldn't need to come 
back and write new laws every year. New services, new ideas 
could be paid for or not depending on the wishes of the 
patient. And I would encourage you to move further in that 
direction. You have already started, and it is very encouraging 
to see that activity, and I thank you for your time.
    Chairman Manzullo. Thank you very much.
    [Mr. Scandlen's statement may be found in the appendix.]
    Chairman Manzullo. Our next witness is Linwood Rayford, 
with the general counsel of the Small Business Office of 
Advocacy, and look forward to your testimony.

STATEMENT OF LINWOOD RAYFORD, ASSISTANT CHIEF COUNSEL FOR FOOD, 
  DRUG AND HEALTH POLICY, OFFICE OF ADVOCACY, SMALL BUSINESS 
                         ADMINISTRATION

    Mr. Rayford. Thank you, Chairman Manzullo, Representative 
Bartlett, Representative Christensen for your ongoing support 
of the Office of Advocacy. The committee asked me to discuss 
the Office of Advocacy's review of government regulations and 
how our review of health care regulations reduces the burden on 
small doctors' offices.
    One of the agencies that Advocacy is responsible for 
monitoring is the Department of Health and Human Services, more 
commonly referred to as HHS. The primary agency within HHS that 
is charged with promulgating rules that govern physicians' care 
of patients and physicians' reimbursement under Medicare/
Medicaid is the Center for Medicaid and Medicare Services, CMS.
    Pursuant to the U.S. Small Business Administration size 
standards, the vast majority of practicing physicians are 
considered small businesses. Recent studies have shown that 
physicians are spending more time on administrative paperwork 
and less time on patient care. Therefore, it has been one of 
Advocacy's goals to have CMS more fully consider the 
consequences of their regulatory actions on small health care 
providers prior to finalizing their rules. This is, after all, 
the primary tenet of the Regulatory Flexibility Act.
    How does Advocacy fulfill its mandate under the Regulatory 
Flexibility Act? Historically Advocacy monitors CMS compliance 
with the RFA by reviewing rules that the Agency published in 
the Federal Register or because of requests from a small health 
care business or health care association that asks us to review 
the rule that was particularly burdensome. The problem with 
this method of regulatory review is that once the rule was 
published in the Federal Register or had come to the attention 
of industry, it was often too late for Advocacy to encourage 
CMS to consider less burdensome alternatives.
    Advocacy realizes that the best way to have meaningful or 
full effect on CMS rule-makings was to become involved in the 
process much earlier prior to the proposed rule or final rule 
being published in the Federal Register. Three recent 
developments have helped Advocacy become involved in CMS rule-
making earlier. First, the President signed Executive Order 
13272, which requires Federal agencies to implement policies 
protecting small entities from writing new rules and 
regulations. That ensures the regulatory agencies will work 
more closely with the Office of Advocacy during the regulating 
writing process.
    Second, in large measure because of the influence of this 
committee, CMS agreed to increase its dialogue with my office 
during the rural development process.
    Third, Advocacy signed a memorandum of understanding with 
the Office of Information and Regulatory Affairs at the Office 
of Management and Budget. Agencies are required to submit 
significant rules to OMB for review before publishing them in 
the Federal Register. OMB and Advocacy have agreed to 
communicate more closely on rules that are expected to have a 
significant small business impact.
    Some examples of how advocacy has influenced CMS rule-
making: Advocacy was involved in reviewing CMS's Health 
Insurance Portability and Accountability Act, more commonly 
referred to as HIPPA. Under HIPPA, CMS promulgated the privacy 
rule. On April 14, 2003, the privacy rule became effective. The 
privacy rule was intended to provide standards for preventing 
unauthorized disclosure of individually identifiable health 
information maintained or transmitted electronically by health 
care providers. Advocacy was intimately involved with the rule 
during each stage of its promulgation. While concerned with 
many aspects of the rule, which we still are, Advocacy fought 
to provide an extended time period for small business to comply 
with such a complex regulation. As a result, small entities 
covered by the regulation had an additional year to comply with 
its provisions.
    Advocacy is aware that this regulation continues to be a 
source of great concern to physicians, and Advocacy is having 
ongoing discussions with CMS to make the provisions of the rule 
more easily understood by health care providers through the use 
of a small business compliance guide. We want CMS to focus on 
compliance and less on enforcement.
    Advocacy also reviews CMS revisions to the payment policies 
on the physicians' fee schedule on an annual basis. Every year 
CMS is required to update the prospective payment system. 
Advocacy has worked with CMS on many occasions in an effort to 
reduce the burden covered by the PPS system on small health 
care providers. Advocacy is pleased with its improving 
relationship it has with CMS and is working to make it 
stronger. Further improvements in Advocacy's relationship with 
CMS will ultimately benefit health care providers like those 
present at the hearing today.
    Advocacy pledges to this community that we will encourage 
CMS to appreciate how their rules and regulations will affect 
small health care businesses. This will hopefully result in 
physicians being able to dedicate more time to patient care and 
less time worrying about government mandates. Thank you.
    Chairman Manzullo. Thank you very much.
    Let us see--I guess Dr. Unger can't make it.
    Dr. Unger. I am here. I thought there were going to be two 
panels.
    Chairman Manzullo. We put everybody together. We will start 
with you.
    Dr. Unger. Thank you very much.
    Chairman Manzullo. We have a 5-minute rule, and I will wave 
this.

STATEMENT OF CHRISTOPHER PELHAM UNGER, M.D., PHYSICIAN ADVISOR, 
                  TRAVELERS INSURANCE COMPANY

    Dr. Unger. I am going to try to make it briefer than that. 
I am a family doctor in Bethesda. I am active and participate 
in the State medical association. I am a member of several 
committees, and I am also a board member of the Taxpayers' 
Association. I have been acquainted with Congressman Bartlett 
for some time. He didn't know that I was one of his unknown 
fans. And essentially what I would like to do if I could is 
just talk to you very, very plainly.
    We have all heard about what trouble this system is in, and 
I think if you visited our offices, you would be quite shocked 
at what you see, and I would like to credit you and everybody 
here for trying to take this on. What I thought I would do, 
over the past few years, in the process of my teaching activity 
in Bethesda, and which I do around the country, I have tried to 
think of certain solutions. And I would like to ask you all 
whether you think any of these solutions would possibly have a 
chance of coming into existence.
    My early intention is that I believe that small units in 
the medical system work better than larger units. I worked in 
very, very large university hospitals. I have worked in small 
Hill-Burton clinics, and I have worked in private offices. It 
is those small offices that really generate efficiency. The 
reason is continuity. The reason is because those practitioners 
have known those patients most of their lives.
    One of the physicians that I worked with in Pennsylvania, 
which is a State now that is really in big trouble, could see 
20 house calls in the morning and give good diagnoses and 
compassionate care and move on from that to an operating room, 
use that operating room all afternoon, and then have night 
hours in his office where people could just walk in. It was a 
wonderful thing. And it was a natural part of our culture. The 
question is, really, how can we preserve and retain that?
    Some of the things I think that are stumbling blocks are 
that we are afraid to say when there is a problem in society 
that we can't vote to regulate it. I will give you a little 
example. Here in Maryland, one of my very close colleagues 
proposed that all of our private gymnasiums would have 
defibrillators, and it was a good thing to do and wouldn't cost 
too much, and that would become a mandate. We had many mandates 
in Maryland, possibly as many or more than any other State. And 
when I saw what was happening, I was realizing how we could go 
down this road of having more mandates, which have to be 
administered, and they have to be enforced, and they raise our 
taxes. I went to the microphone at that point and said, I don't 
think it is a good idea, and I think we should vote no on this.
    It is very difficult for all of you to say no to these 
regulations unless we have alternatives. Now, some of these 
alternatives might work, and some of them may not. One of the 
basic things is that when you have an argument, we have only so 
many dollars to put into this health system. We can't continue 
to take tax money out and give everybody everything they want. 
Those tax dollars will either go over to managing the system, 
as one of our regulators says, overkill regulation, and that is 
here in Maryland when they come to visit my office. Those 
dollars will have to go over to management and administration, 
or those dollars will go over to services.
    If they go over to services, we can help our nursing 
shortage. If they go over to services, we can help our 
shortages of general surgeons and primary caregivers if we 
support that. So the first thing is when somebody sees a bill, 
and the bill has a fiscal note on it, and the fiscal note says 
$9 million, my thinking is why don't we take the $9 million and 
spend it on vaccines, or spend it on nurses or spend it on 
primary caregivers? And that is a very strong argument. I was 
wondering if someone might be able to offer a comment to me on 
that argument. Is that a valid argument?
    Chairman Manzullo. Why don't you continue with your 
testimony and during the question-and-answer period----.
    Dr. Unger. I will postpone that to slightly later.
    One of the arguments that comes up, and this is very 
important, many of our regulations in society which are now 
sinking the system actually work. A few years ago a family 
member had to be kept alive with blood transfusions, and I 
didn't know it at the time, but that blood transfusion system 
is so beautifully controlled by Federal mandates and Federal 
regulations that we could have given her blood transfusions for 
weeks and not have had one worry about AIDS or hepatitis in 
those vaccines.
    Now, the question is why regulations work very well in this 
system in certain parts of the system and why they work 
terribly in other parts of the system. And the way I reason 
this through is when you are regulating a product or commodity, 
it seems to do very well. If we regulate the way we homogenize 
milk or they way we put lead or don't put lead in gasoline, it 
seems to work very nicely, and it protects everybody. But when 
you regulate relationships--and this system is a relationship-
based thing. I have been listening to all these doctors here 
and their frustrations and how their relationships are intruded 
upon. If you don't intrude on that relationship, you may have a 
chance of surviving.
    To summarize and conclude, I didn't want to go over my 4 
minutes. First, I think the liability reform that you folks and 
the Congress have passed is absolutely commendable. You got to 
keep bringing it up. In the 1980s when President Reagan had a 
vision to win the Cold War, he kept bringing Congress back to 
it. It was a very, very difficult thing, but he brought them 
back to it, and essentially it was that repeated pressure that 
enabled him to get the funds that he needed.
    I would like to give you another example. When HIPAA was 
passed, HIPAA was placed under a concept of covered entities 
and non-covered entities. What you can do for these doctors 
here is you can say if you have fewer than 15 employees, and 
this is a Small Business Committee, you can say, you are not a 
covered entity, if it is OSHA, CLIA or whatever it is, and that 
will expand that, and that is rational, and I think it is a 
passable thing.
    Another thing that might be possible is to consolidate all 
of these agencies that we have. Consolidate them into one 
agency.
    Chairman Manzullo. It would be a department of aggravation 
for medical doctors.
    Dr. Unger. Department of aggravation. I think that pretty 
much summarizes it.
    Essentially, I think we should know when we address this to 
our patients, when we address this to our voters, when we 
address this to our consumers, that they are in direct 
competition with this regulatory monster, and it is either 
going to get bigger or smaller.
    [Mr. Unger's statement may be found in the appendix.]
    [Additional material submitted by Dr. Unger for the record 
is retained in the Committee's file.]
    Chairman Manzullo. Doctor, thank you for your testimony, 
especially the words this is not a regulation of product, but a 
regulation of relationships. That says it more than anything. 
It is the first time I had the opportunity to meet you.
    Next witness is Bill Sarraille, who is an attorney and 
represents health care associations, medical associations, and 
we look forward to your testimony.

  STATEMENT OF WILLIAM A. SARRAILLE, ATTORNEY, SIDLEY AUSTIN 
                       BROWN & WOOD, LLP

    Mr. Sarraille. Thank you very much, Mr. Chairman.
    You asked for some thoughts on how to try and address some 
of the concerns that have been raised today, and unfortunately 
there are no magic answers and no magic bullets here. It is a 
very difficult problem. But I think there are some suggestions 
that can be made. Some are incorporated in the H.R. 1, which is 
a very promising piece of legislation, and hopefully it will 
emerge well from the conference mechanism.
    First I would recommend the development of a special 
congressional commission to evaluate the extent to which 
existing regulatory burdens may be modified or eliminated. 
Although the Bush administration under the direction of both 
Secretary Thompson and Administrator Scully has made some 
progress along these lines, clearly there is much more work to 
be done.
    Second, Congress should require that the Centers for 
Medicaid and Medicare Services adopt an evidence-based approach 
to new regulatory impositions. Physicians should not be subject 
to increased regulatory burdens unless a benefit/burden 
analysis that is based on reasonable data suggests that the 
burden should, in fact, be imposed. We shouldn't guess at what 
may be best for our medical system.
    Third, given the sharp disagreements that have occurred 
regarding the accuracy and the credibility of regulatory impact 
statements, Congress should create a commission to review that 
process and those determinations. In the case of HIPAA for 
instance, the Department of Health and Human Services estimated 
that the average cost for a physician practice to implement the 
standards in the first year would be $3,703. My experience, 
having worked with hundreds of practices, is that that estimate 
is probably off by a factor of somewhere between 5 and 10. The 
policy probably would have been a lot different if we had known 
what the real cost would be.
    Fourth, in imposing burdens on different classes of 
providers, both Congress and the regulatory agency should 
separately consider the effect on and consequences for small 
physician practices. This should be a required step in the CMS 
rule-making process. An attempt to differentiate between 
providers has been made in some cases, and it has been quite 
successful in some cases. Unfortunately this approach is not 
uniformly made and followed.
    Fifth, in imposing any new regulatory burdens on 
physicians, any future congressional or agency action should be 
time-limited, meaning that the new burden should only be 
effective for a finite period of time and require 
reauthorization. This would give both Congress and the 
regulatory agencies an opportunity to reevaluate the policy and 
life of the actual implementation experience.
    Six, both Congress and the regulatory agencies need to 
think more in terms of carrots than sticks. Physician 
organizations have designed many mechanisms to improve patient 
care, such as accreditation and credentialing programs, but 
those providers that voluntarily adopt those standards receive 
nothing as a consequence of their commitment to excellence. In 
this way, the program has actually rewarded mediocrity and 
competence and stifled innovation in their commitment to 
excellence.
    Seventh, rule-making proposals should be appropriately 
spaced in time to allow physicians and their representatives to 
absorb and respond to those proposals. Administrator Scully has 
recently implemented a process by which there would be monthly 
releases of new regulatory materials. I think actually a 
quarterly schedule would be more appropriate for small 
physician practices.
    Eighth, Congress needs to demand increased accountability 
from CMS itself. Although Secretary Thompson and Administrator 
Scully have made some progress here, there is unfortunately 
much more work to be done. For instance, CMS failed for years, 
despite a clear congressional mandate and statute, to update 
the list of approved procedures to the Medicare ambulatory 
surgery center list, which is necessary to permit access to 
those procedures. Even when belatedly the Agency recently 
updated the list, it refused to add a number of procedures that 
it conceded met the statutory requirements because in effect it 
said it did not have sufficient information on the cost of 
those procedures. As the Agency admitted however, the reason it 
did not have this information is that it had failed to meet 
another congressional mandate to collect that information.
    The idea that the failure to meet one statutory mandate was 
excused by a failure to meet another has proven quite galling 
to physicians. I recommend the creation of a congressional 
commission specifically tasked to address accountability issues 
with an annual reporting obligation to Congress.
    Ninth, physicians and providers must be permitted to rely 
upon the guidance they receive from the agency and from its 
agents. The General Accounting Office has reported that the 
information provided by some within the program was inadequate 
almost 85 percent of the time. Physicians are quite upset and 
angry that they are threatened with the possibility of criminal 
prosecution for allegedly failing to meet requirements which 
the agents of the program themselves cannot articulate 
correctly.
    Couple of other quick observations. Obviously there has 
been a lot of discussion about the disappointment that 
physicians have about the Senate's failure to enact medical 
liability reform. That is a huge and dangerous situation.
    With respect to reimbursement rates, we have this ongoing 
issue of the conversion factor under the Medicare fee schedule. 
There is some help in H.R. 1. Unfortunately, however, there is 
still no permanent fix to the problems in the formula itself. 
This is an unacceptable problem which is crying out for a 
permanent solution.
    Finally, I do have to agree with those that say that there 
are instances of government prosecution here which is 
overzealous and in some instances just plain wrong. I was 
involved in one audit matter where the client was accused of 
having collected $900,000 in overpayments. Ultimately it was 
found to have only collected $300 in overpayments. 
Unfortunately it cost the provider thousands of dollars to 
prove its point.
    Thank you very much for your time today.
    Chairman Manzullo. Thank you.
    [Mr. Sarraille's statement may be found in the appendix.]
    Chairman Manzullo. What a wonderful panel of witnesses 
here. This is--why don't you guys--I know you can't all be in 
Congress, otherwise Roscoe would have something to do about it, 
but we need people with common sense and background and just to 
sit down to try to figure out what is going on. One of the 
problems that Congress has is that so often many Members just 
don't see the big picture. They just don't get it, and you 
folks do.
    I have just got a couple of questions here, and one of them 
that, Dr. Thomas, has bothered me for the longest period of 
time, and I guess it will continue until something gets done, 
is the statement--and obviously this is based upon scientific 
evidence, and it seems to be getting worse because Department 
of Health and Human Services reports that communities of color 
experience serious disparities in health access and outcome in 
six areas: stroke, heart disease, diabetes, infant mortality, 
cancer, HIV, AIDS. And the gap seems to be getting greater, 
doesn't it? And I think that is extremely dangerous.
    We spend a lot of time in our small business hearings on 
access, trying to make health insurance premiums more 
affordable, and I don't see that happening. I see insurance 
premiums going up, and at the same time this discrepancy--
disparity that occurs between people of color and, for example, 
Caucasians that would suffer from the same maladies. Where are 
we going to go on that, Dr. Thomas?
    Dr. Thomas. Well, disparities is a complex condition in 
terms of the health care delivery system and differences in 
terms of people coming to a state of disease at different 
stages, but if we look at the 41 million uninsured, half of 
that population are minorities, and so, therefore, there is a 
question of access or lack of access. In addition, there are 
still just remnants of historical racism that exists within the 
medical system. There are people who are well insured who are 
not being offered the same treatments for various conditions 
when they present to the emergency departments or to the 
physicians' office. So the question of really just 
accountability to treating people equally is still an issue.
    In addition, there are, you know, specific differences in 
terms of peoples' responses to different medications, and the 
more that there is more clinical trials involved, minorities, 
the better we can understand how to treat specific diseases 
adequately. There are certain treatments that are just totally 
inadequate for certain diseases within this population. But we 
have such a large percentage of uninsured within our 
communities, that those people are just not accessing what 
health care is available. They are accessing it at a very late 
stage.
    Chairman Manzullo. Thank you for commenting on that.
    Dr. Christensen.
    Mrs. Christensen. I have a couple of questions. I guess I 
would start with Dr. Pendleton and Greg Scandlen because both 
of you talked about putting the patient back in charge. And a 
few years ago, we attempted to reform managed care and restore 
the patient and doctor relationship. Wouldn't that accomplish 
the same thing that you are trying to accomplish through the 
MSAs?
    Dr. Pendleton. Through managed care?
    Mrs. Christensen. Reforming managed care so that the 
patient and the physician really made more of the decisions as 
to what was really medically necessary, what referrals would 
take place.
    Dr. Pendleton. I think that having the money in their 
hands--and I would like to see this in Medicaid, too, because I 
think for poor people to have money in their hands would get 
them more respect, more attention. They would be at the center, 
and they would learn how to handle money and its value.
    But anyway, medical savings accounts, I think, bring the 
patient back. The problem with the third-party payment and 
particularly the low payment, which is very expensive and 
wasteful, is that neither the patient nor the physician need to 
know what it costs. The Forbes Company and quite a few 
companies, but the Forbes Company sticks in my mind. Steve 
Forbes said that their company for 7 years, and it may be 
continuing, had no rise in cost of their medical care, and the 
patients were delighted. And I just think--I agree with you in 
the sense that of considering the patient and the decisions 
that they and their doctor make, my feeling is the focus and 
the center should be on the patient in consultation with the 
doctor, whoever else she wants to talk to. Does that make 
sense?
    Mrs. Christensen. I think so. I wanted to give--Dr. or Mr. 
Scandlen? Dr. or Mr.?
    Mr. Scandlen. Just Mr. I am lucky if I qualify for that.
    I take it you are referring to the Patients' Bill of 
Rights, and without redebating that issue----.
    Mrs. Christensen. It just seemed to me if you wanted to put 
the authority to make decisions back in the patients' hands, 
that maybe that might be another approach.
    Mr. Scandlen. Unfortunately would not have done that. The 
review commission actually undercuts the authority of the 
attending physician to make decisions. It could be a whole 
discussion.
    Mrs. Christensen. Let me just follow up on that question. 
How would you respond on the issue of medical savings accounts 
to those who say that really it would not really help, but hurt 
coverage, because it might cause employers to drop coverage 
from traditional low-deductible insurance coverage and, 
therefore, then maybe move more people out of traditional who 
were well, leaving the sicker in traditional, causing insurance 
premiums to rise.
    Mr. Scandlen. I am not sure what traditional means anymore.
    Mrs. Christensen. Let me say the lower deductibles that may 
cost more to the employer when you now provide medical savings 
accounts for a high deductible.
    Mr. Scandlen. Only 7 percent of the population is currently 
in traditional fee-for-service indemnity programs of which 
everyone is in HMOs or PPOs. And generally deductibles are 
going up anyway. Cost-sharing is going up; co-insurance, co-
payments, premiums. What we are seeing in the overall trend of 
health care is so dramatic that small employers are desperate. 
Many are dropping coverage entirely.
    I think medical savings accounts have the appeal, first of 
all, allowing patients to self-ration their care instead of a 
third party rationing for them, and ultimately holding down the 
rate of increase to a more reasonable level. So I would 
disagree that it will encourage employers to drop coverage. It 
will actually give them a way out of the cost limit that they 
are currently facing and enable them to maintain coverage.
    Mrs. Christensen. Do I have time for one more question? 
There have been studies that show malpractice caps for many, 
many--I mean, there are so many important issues, but this is 
perhaps the one that is really breaking doctors' backs, the 
malpractice one. And we passed a bill that would provide the 
cap at 250,000 for noneconomic damages. Nineteen States have 
implemented a cap, for example, in the past 12 years; showed 
that malpractice premiums rose by 48.2 percent. Those without 
caps, the premiums rose, but not quite as much. So studies are 
showing that malpractice caps on their own do not really lower 
insurance premium increases.
    Now, we are going to have a debate, I am sure, as to 
whether that is the approach we should take, or should we take 
a more comprehensive approach looking at the insurance issues 
and removing their exemption from antitrust, looking at maybe 
providing some tax credits to lower the cost of malpractice 
premiums for providers. Why is that not a better approach than 
just simply imposing a cap that--where it hasn't been shown to 
work?
    Mr. Sarraille. You asked an important question. I think, 
frankly, the response from most physician groups and the 
insurance industry, and we can debate about whether or not they 
have something to bring to bear to the discussion, but I think 
that the feeling is that what we are really confronting on a 
national basis at this point is problems in the malpractice 
systems of actually a fairly finite number of States, but 
unfortunately the problems are so great there that they have a 
national effect on the rate system across the United States. 
And so to talk about what the effect has been in those States 
that have implemented legislation versus those that have not, 
the problem is it hasn't been done on a national basis, so you 
really can't determine what the effect would be if there is a 
national approach.
    You know, I think that certainly the number of 
organizations that I have represented have in the past been 
extremely critical of the insurance industry. Physician groups 
are tending to be less critical of them in the context of this 
debate, and the reason for that is that notwithstanding 
increases in rates that we have seen, there obviously have been 
huge departures by insurance companies in the medical 
malpractice field, and one suspects from that that the 
conclusion is that the insurance companies are not, in fact, 
reaping tremendous profits from their involvement in the 
medical liability field. And, in fact, there is a structural 
problem that needs to be addressed.
    Dr. Pendleton. I would like to add something if I could. 
The statistic that you quoted, I question about it being low. 
What I had read, and, of course, that may not be true either, 
was that the percentage of increase for the States that did not 
have caps had gone up 162 percent versus I think the 48 you 
mentioned.
    But what I would suggest is going on the Pennsylvania 
Medical Society's Web site. They did an excellent treatment of 
something put out by the American Trial Lawyers Association 
pooh-poohing everything the doctors said. It is pms.org, and I 
think it is a very well done piece, and you can get a different 
perspective.
    Chairman Manzullo. Thank you.
    Roscoe.
    Mr. Bartlett. Thank you very much.
    Do any of you have statistics on the percentage of the 
amount of money that comes into the doctor's office that 
actually goes to the doctor today as compared to yesteryear 
before we had all of this managed care and regulations? 
Obviously health care costs are rising. Dr. Pendleton had a 
chart showing them going up ever more as a percentage of the 
GDP. The testimony we have today is that less and less of that 
is going to the doctor. Do you have data on what percent of the 
money that comes into the doctor's office ends up in the 
doctor's checking account, that ends up somewhere else? It has 
to be a decreasing percentage; does it not?
    Ms. Donalda Toro. Since our office is very small, we have 
two physicians, myself, and then a receptionist. So I would say 
maybe 25 percent, maybe 20 percent.
    Mr. Bartlett. Goes to the doctor.
    Ms. Donalda Toro. Yes.
    Mr. Bartlett. Mrs. Toro has been in my office. I am very 
impressed that if her husband didn't have her there running the 
office, he would get even less money. She does a better job 
than the average office manager does. I am very impressed with 
her skills and her persistence.
    Ms. Chong. I am the gofer. I don't have the percentage, but 
I just want to give you a perspective. Twenty years ago, a 
senior orthopedic doctor took care of a knee replacement at 
that time versus arthroscopic surgery. Nowadays it is about 
$700, and in the old days about $2,000. This is 20 some years 
ago. So you can see in terms of the disparity, I think, in 
terms of reimbursements. So it is not even giving you the 
inflationary increase, but it is really decreasing. So it is 
very hard, very hard to run the offices.
    Dr. Thomas. It is difficult to say nationally and difficult 
to say across each specialty. There are some areas where people 
are highly profitable because there are so few, but their 
profit margins certainly decreased. I have provided with you 
just an example of my own surgical practice, which is maybe 
not--it is a small practice, but it can show you, you know, 
revenues for 1 month and charges, and it is less than 25 
percent.
    Mr. Bartlett. Thank you very much.
    As a nonprofessional looking on the outside in, I think 
that most of the problems that plague your industry and that 
are increasing costs fall under two categories. The first is 
third-party payer. Health care is about the only thing that the 
average American shops for and never asks the costs. That is 
because somebody else is usually paying the cost. It is a bit 
like going grocery shopping knowing that someone will be at the 
checkout counter to pay for their groceries with their credit 
card. Third-party payer results in uncontrolled costs, and as 
an attempt to control these costs we now have excessive 
regulations. And as more than one of you pointed out, these 
regulations directly or indirectly really result in rationing, 
because if you had a third-party payer, you got uncontrolled 
costs. If somebody else is paying the bill, why not go for the 
max? And then to control the cost, you do that by making it so 
difficult for the doctor to collect, he finally decides not to 
collect, and half of the patients decide not to ask for the 
health care.
    And the second thing that is driving our cost is 
malpractice insurance, or the whole malpractice problem. The 
insurance premiums are only a part of that. I don't know what 
your estimate is as to the percentage of the cost of health 
care that are represented by the insurance premiums and what 
percent is represented by the defensive medicine that doctors 
practice. And I know that that is--you can't get inside a 
doctor's head to know how much of what he prescribes is not to 
take care of the patients' problems, but to immunize him 
against malpractice, and you can't get inside the doctor. I 
have heard estimates like 25 percent of all health care costs 
are as a result of malpractice insurance.
    Aren't there solutions to these problems in a sane society? 
Why shouldn't we put the patient in charge again? They run the 
government. They run our whole country. They run our industry. 
They run our farms. Why can't they make decisions about their 
health care, if we put them back in charge and they paid for 
it? Now, the average person thinks he can't do that because 
maybe it is uncontrollable. But at least to some extent there 
needs to be meaningful co-pay so that the patient is a shopper. 
Patients don't shop. They just go and never ask the cost 
because somebody else is controlling those costs through 
regulation.
    In terms of malpractice, why can't we give patients two 
routes for their health care? When the patient comes to see you 
and say, Mary, I would be happy to treat you, there are two 
routes we can follow. One is if you can agree to a no-fault 
kind of insurance, I am not going to try to hurt you, but if 
something happens, doesn't turn out like we both hope it will, 
you are going to be recompensed for that. No pain and 
suffering, no punitive damage, but there will be an award for 
you. If that is the health care route you choose to follow, it 
will cost you $400 for this procedure. But if you choose to 
follow the route where you reserve the right to sue me with Joe 
down the street, now it is going to cost you $1,200 for that 
health care because I am not going to ask my other patients for 
your right to sue me. Which of these routes of health care 
would you choose to follow?
    My guess is that 99 plus percent of all of the patients 
would choose to follow the no-fault insurance kind of a route. 
I know there are a lot of lawyers out there that would have to 
seek other kinds of businesses, but I am not sure that that 
would be bad for our society. Why can't we do--move the policy 
ownership back to the patient, have meaningful co-pay so they 
are careful shoppers? Why can't we give patients a choice?
    You know, most of the health care costs are driven not by 
90-odd percent of the patients, but a tiny percentage of 
patients who are enticed by lawyers, and I see their 
advertisements, and I see them in the paper, I watch them on 
television, and they are enticing the patients to come to them. 
I will get you rich; me richer, but I will get you rich in the 
process. Why can't we follow these two routes which seems to be 
a sane way to avoid most of the problems we have in health care 
costs?
    Mr. Scandlen. If I could add an observation, the third-
party payment and malpractice compound each other as well. 
Physicians are able to do more defensive medicine because there 
is a third-party payer who will pay for it. And patients are 
suspicious of the motivations of the doctor they are seeing who 
they probably have never seen before, and they wonder who you 
are really working for; are you working for the insurance 
company, or are you working for me? And the system that we have 
has just absolutely put this barrier up in the patient/
physician relationship that medicine has always relied on in 
the past.
    Mr. Bartlett. You are exactly right. I have often used the 
illustration you go to the doctor, he writes you 10 
prescriptions. And you say, Doctor, do I really need 10 
prescriptions? He says, no, Mary, you need four prescriptions, 
but I need the other six to prevent me from a malpractice suit. 
And I think that is what you are referring to.
    Dr. Pendleton. Two things. Right now we can't adjust fees. 
If a person is a member of BlueShield, they can't adjust the 
fee, and not allowed to pay the patient, and Medicare doesn't 
allow it, and neither does managed care. But what we need to do 
is have the patient have the money to pay for those fees, but 
care enough so they won't have the doctor spending it. I have a 
friend who has enough money that he self-insures. Not many of 
us can do that. But he called around several--three MRI 
radiology departments and said, I am paying cash; what can I 
get this for? The initial charge was $1,300. He paid 450 for 
it. Medicare pays even less. If patients began to just call up 
the doctor, very simple, I have a medical savings account. Now, 
doctors don't know how to charge cash anymore, they really 
don't--often, but all the patient has to say is, I have cash, I 
am paying cash, what are your fees for so and so, and the 
doctors would very quickly bring the fees down to where they 
could outdo their competitors, but still manage to pay for the 
service that they were doing. And the price would seek it so--
--.
    So the thing about medical savings accounts is the patient 
has first dollar coverage in their bank account, and they can 
negotiate. It brings cash back into the system, and cash brings 
on accountability because everybody wants it, and it motivates 
people, looking at it from the perspective of a cognitive 
behavior therapist where we go for rewards and avoid pain. 
Money is the greatest external reward there is.
    So anyway, I totally--there should be this negotiation 
where the patient can say that is not worth it, or would a CT 
scan do instead of an MRI, because I am paying for it.
    Mr. Bartlett. You are right. When insurance companies pay 
for health care, obviously not all the money goes for health 
care, because you can see the big buildings they build. I note 
you can tell who is screwing you when you drive into a town, it 
is the people who have big buildings there, it is the 
government, the banker and the insurance people.
    Dr. Thomas. We all love cash, but one example from my own 
experience is I have seen patients who do not have health 
insurance who are working people, a landscaper who comes in 
with a large hernia and wants to pay cash for me to repair that 
hernia and has some of that money to do it, and I am willing to 
accept that in partial payment and over time, but he has to pay 
up front the anesthesiologists. He has to pay up front the 
hospital fee. So we are not in isolation.
    So I think what the medical savings accounts can be 
beneficial to middle-class individuals. Those who have a median 
income of 23,000, they are not spending anything on health. So, 
that, I think, is the concern in terms of that being the sole 
solution to our problems.
    Ms. Chong. I wanted to add to the point in the past 6 years 
probably about 5 new farmers in our area, and they are just 
wonderful and hard-working, and they don't have insurance. Even 
$5, $25 a month, and they will probably take a very long time. 
But we have a little--it is the respect, not so much about the 
money, too. Here you have someone who came in here and got the 
surgery done, and yet they don't pay you. They think you are so 
rich you don't need the money.
    So I am saying is I have found some hard-working folks in 
our neighborhoods in our county, and we are willing to work 
with them. They need the surgery, so they continue to work on 
the farm. I don't have an answer to many of this uninsured 
situation, yet we work with our patient when they are willing 
to say, okay, here is $5.
    Ms. Donalda Toro. If I may, I am not proud of this fact, 
but I spent 10 months working for an insurance company as a 
consultant manager, so I went through the training. I 
understand insurance. And I think we have given the insurance 
companies too much power. They hold the purse strings, and you 
know it is just to support this giant infrastructure of claims 
processing.
    When I was in your office, you asked me to think about what 
type of system I thought would work for everyone. I think 
catastrophic policies. That is what we have in our office. And 
basically, you can go to any physician. I called the insurance 
company and I said, I used to sell self-insured plans. So when 
I was shopping as a practice manager, I said, I want a 
catastrophic policy. I don't want any of the new-fangled 
smoking mirror products you have. I want catastrophic care 
because, you know, that is the only reason I need you, if 
something serious happens and, say, it costs more than $2,000. 
And so they said, well, what we can offer you is you can go to 
any physician. You can--basically it is a high deductible. We 
pay $1,500 deductible up front. After that the insurance kicks 
in, and we pay--they pay 80 percent, we pay 20 percent, and it 
reduced our insurance premiums by 30 percent.
    Mr. Bartlett. Mr. Chairman, one last observation and 
question. When I retired, I stayed that way 5 years before I 
went to Congress, but I wanted to change my insurance to 
catastrophic insurance. And I tried to buy a policy with a 
$5,000 deductible. I wouldn't like paying $5,000, but I could 
pay $5,000. And I wanted them to cover everything after that. 
Now, for the average American, they don't spend $5,000. The 
insurance company would have nothing to pay. I couldn't find 
that insurance. Is it available today, and if it isn't, why 
not? If you had a $5,000 deductible, you would be a careful 
shopper. You would want your health care costs to remain as low 
as possible because you are paying the first 5,000.
    Ms. Donalda Toro. And every American would be self-insuring 
themselves without paying these huge premiums every month. The 
problem we have--our patients are hard-working, and they come 
in and say, I pay a lot of money every month on these premiums, 
so therefore I am entitled to the best care possible. And I 
call them and say, well, your insurance company didn't pay, and 
they say, that is between you and the insurance company. And I 
say, you understand I have no leverage with your insurance 
company. You contracted with them to pay your bills. You are 
going to have to help me out with this, otherwise you have to 
pay the bill yourself.
    Mr. Scandlen. I spent a little bit longer in the insurance 
industry than that. I spent 12 years in the BlueCross/
BlueShield system, and I am not unproud of it, but one of the 
problems is that it is not just Federal. The States get 
involved also, and $5,000 deductibles are available in most of 
the country.
    Unfortunately in a State like Maryland it is virtually 
impossible to get a medical savings account for small 
employers. You can in the individual market, but the Health 
Care Access Commission has added so many bells and whistles to 
the medical savings account program that an already too 
complicated program is indecipherable in Maryland, so small 
employers simply cannot get it here. And that is a real problem 
also. This State has got to start moving in this direction, 
too.
    Ms. Donalda Toro. Speaking for self-insured plans, I 
understand it isn't available for corporations like that, but I 
am saying the individual could self-insure themselves. Their 
employer would just purchase catastrophic health care, 
basically very high deductibles, and then they could put more 
money in their employee's pocket. Okay, if you need this $1,500 
to pay this high deductible, you are bringing our premiums down 
by 30 percent.
    Mr. Bartlett. Why should the employer be involved at all? 
Why don't they put the money and put something in our paycheck 
and we pay for it and get 100 percent reduction for the premium 
like they do?
    Ms. Donalda Toro. Yes. Also when a husband and wife both 
have insurance and have different employers, the important 
thing is not have the other insurance company as the secondary. 
Cancel that. Ask your employer to give you $4,000 or $5,000. 
That is what it is equal to in lieu of having insurance at all.
    Mr. Bartlett. Thank you, Mr. Chairman.
    Chairman Manzullo. Thank you.
    We have to wind up. I just wanted to make a comment. You 
talk about the only major medical, and people were expected to 
take care of day-to-day visits, et cetera, but do you know who 
expanded it to make it cover the day-to-day? It is the 
physicians, because they would go not only to Washington, but 
mostly State capitals to make sure every primary care physician 
was there, every OB/GYN, every pediatrician. Everybody said, 
well, something called preventive medicine, and if insurance 
covers the cost up front, then it is a lot cheaper at the end 
of it. And it is because of the State legislators--Illinois for 
years has had in vitro fertilization covered as a mandate, and 
one-third of the policies written in the State of Illinois are 
covered by State law. The rest are under ERISA plans.
    But it comes full circle, because I have seen it with the 
doctors coming to us lobbying that they want this included in 
Medicare. And you won't believe what happened to the Senate 
bill. That thing got loaded up; people from your own 
organizations that want more and more reimbursement, not just 
moderate reimbursement, but more and more coverage. And you 
reach a certain point where there are only a certain amount of 
dollars, and what point do you spread those few dollars that 
are there to take care of the people in this country?
    Dr. Pendleton. That is what we have now is prepayment. It 
is not insurance. And high-deductible insurance is a lot 
cheaper, the idea of putting that same money into an account. 
Or the person could do it in a savings account, but it is not 
tax deductible, but we need high-deductible insurance. The 
Congress, the House lowered the deductible. The savings is in 
the higher deductible.
    And you are right. Every law--every group goes to get their 
coverage, and all those mandates increase the cost of insurance 
very seriously.
    Chairman Manzullo. We could sit here for the longest period 
of time and not resolve the issues, but I find this panel 
extremely interesting and extremely talented. This gentleman is 
an attorney down here, and attorneys sitting next to physicians 
is interesting. There are a couple back home. He is a trial 
attorney that does plaintiffs' cases for medical malpractice. 
His wife is an OB/GYN. And we had some very interesting 
discussions. But what is significant about this couple is they 
were just getting hammered on their health and accident 
insurance because they are both sole practitioners, so he set 
up MSEs because no one else was offering them. That product is 
still unknown. I don't care. We liberalize the laws on them, 
and he said, Don, I cannot believe. His premiums got cut in 
half. He pays 50 percent less in premiums with the MSE. That is 
just for him and his wife and two children.
    And so what he did, he developed a product, and he sells 
it. It doesn't cost that much to set up, maybe a couple hundred 
bucks, but here is a product out there that is working. Very 
few people know about it. There are still a few insurance 
people that are selling the product out there. So it is 
something--got to get word out, and the word is we have to get 
back to Washington.
    Thank you so much for your testimony.
    Roscoe, I can't tell you how much I appreciated this. The 
extent of the local talent and knowledge, you are really 
blessed to be in a wonderful congressional district, and those 
of you who are represented by Roscoe are lucky to have him.
    Did you have a concluding remark?
    Mrs. Christensen. I also wanted to thank Congressman 
Bartlett for the hearing, and we still have a lot of work to 
do, and all of the issues we heard today are extremely 
important. They are not only important to the providers of 
health care, but to the patients we serve, and that makes it--
them important to the entire country. So I look forward to 
continuing maybe having some more hearings like this.
    Chairman Manzullo. Let us go down to the Virgin Islands in 
January.
    [Whereupon, at 4 p.m., the committee was adjourned.]

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