PNHP DATA UPDATE - September 2000

Uninsured and Underinsured
About 20% of poor children lacked health insurance in 1999, about the same percentage as in 1997, despite the enrollment of 2 million children in the Children�s Health Insurance Plan (CHIP). The percentage of low-income children with private coverage fell from 47% in 1997 to 42% in 1999, while the percentage with Medicaid/CHIP increased from 29% to 33%, according to a study by the Center for the Study of Health System Change. About 11 million children lacked coverage in 1999 (Center for the Study of Health System Change, 4/00).

The percentage of low-income parents without health insurance rose from 31% in 1997 to 35% in 1999. Researchers attribute the climb to welfare cuts and the lack of employer-sponsored coverage for low-wage workers (Center for the Study of Health System Change, 4/00).

Nearly one million low-income adults in 15 states lost Medicaid coverage between 1996 and 1999, mostly as they moved from welfare to work. In a majority of states, a person working full time for $5.15 per hour exceeds the Medicaid income eligibility requirements. In Louisiana, Virginia, and Texas the Medicaid income limits for a three-person family are $3,168, $4,572, and $4,728 (Families USA 6/20/00).

Hispanics Lack Health Coverage

More than 11.2 million Hispanics are uninsured, including 3.4 million children. Hispanics make up 11.7% of the population but more than 25% of the uninsured. One-third of Hispanics have no health insurance coverage, twice the national average. Only 43% of Hispanics have employer-sponsored health insurance, compared to 63% of Americans overall. 9 million uninsured Hispanics are in working families. Among those who are uninsured, 43% reported they went without needed care and 67% reported problems with medical bills. (Working Without Benefits: The Health Insurance Crisis Confronting Hispanic Americans, Commonwealth Fund, 2/00).

Uninsured Hispanic children with asthma are six times more likely to forego standard medical treatment than non-Hispanics; diabetes-related end-stage renal disease is up to six times more prevalent among Hispanics than among non-Hispanic whites; uninsured Hispanic women with breast cancer are twice as likely to be diagnosed at a late stage compared to non-Hispanics; and uninsured Hispanic men with prostate cancer are four times more likely to be diagnosed at a late stage than non-Hispanic men (Latino Community at Great Risk, White Paper of the ACP-ASIM, 3/00)

The percent of low-income adults who are uninsured varies by state from 21% in Minnesota to 50% in Texas. One-fourth of low-income adults aged 55-64 are uninsured. (Urban Institute, 5/18/00).

Currently-insured persons of any race who have experienced a recent gap in coverage are two to three times more likely go without needed care and to have problems paying medical bills than those with continuous coverage. Rates of access/cost problems among those with gaps in coverage are nearly as high as those of the long-term uninsured (Schoen and DesRoches, Uninsured and Unstably Insured: The Importance of Continuous Insurance Coverage,” Health Services Research, 4/00)

108 million Americans, 26 million of whom are children, lack dental coverage, according to a report released by U.S. Surgeon General Dr. David Satcher. Tooth decay is the most common chronic childhood disease; more than 33% of low-income children have at least one untreated decayed tooth compared to 17% of children above the poverty line. Tooth decay goes untreated among nearly half of all poor African Americans and Latinos. Some 100 million people lack access to fluoridated water (Los Angeles Times, 5/26/00).

The uninsured are two to three times less likely to seek medical care when they experience serious symptoms than people who have insurance. Researchers asked people about their response to 15 serious health problems, such as a mass in the breast, blurred vision, and chest pain. The appearance of serious symptoms prompted 45% of people with insurance to seek medical treatment, compared to 24% of the uninsured. The uninsured were also more likely to think about getting care but not follow through; 33% compared to 13% of people with insurance. (Archives of Internal Medicine, 5/7/00).

30% of Americans aged 55 to 64 rate their health as “fair” or “poor.” Of these, more than half (53%) say they cannot pay their medical bills, 20% are uninsured, 40% rate their insurance as fair or poor, and 40% say they went without needed care in the last year (Commonwealth Fund, “Risks for Midlife Americans,” 1/27/00).

Seniors Lack Prescription Drug Coverage

31% of Medicare beneficiaries lack prescription drug coverage, and most of those with private coverage face growing restrictions on benefits. Three of four Medicare HMOs cap drug benefits at or below $1,000 a year, while 1/3 limit benefits to $500 or less. Medigap policies with drug coverage are costly and often cover only 50% of drug costs up to $2,500 (or occasionally 50% up to $6,000).

Beneficiaries without drug coverage average five fewer prescriptions per year than those who have coverage. The disparity is even greater among seniors in poor health who lack coverage - they report filling 11 fewer prescriptions per year than their insured counterparts. Less than half of all Medicare beneficiaries with incomes below the federal poverty level are covered by Medicaid, which covers prescription drugs (“Medicare and Prescription Drugs,” Kaiser Family Foundation, 3/00).

In the past six years, prices of the 50 drugs used most frequently by the elderly rose an average of 30.5%, double the rate of inflation. In the past year, prices for 16 of the drugs rose at least three times the rate of inflation (Families USA, New York Times, 4/26/00).

10% of Medicare beneficiaries lacking drug coverage report they did not fill a prescription last year because they could not afford it. Seniors without drug coverage buy one-third fewer drugs but pay nearly twice as much out-of-pocket as those with coverage (Familes USA Report, USA Today, 4/26/00).

Increasing risk of out-of-pocket costs is associated with higher subsequent mortality among elderly Americans, according to a study of over 3,700 seniors. Compared with the low-risk group, seniors in the high-risk group had an adjusted hazard ratio of 1.4. (Clancy et al, Arch Fam Med, 2000;9:251-257).

Pennsylvania seniors without prescription drug coverage pay an average of 113% more for medications than large purchasers pay, according to Public Citizen. A survey of prices of the 10 most commonly prescribed drugs at 98 pharmacies found that uninsured seniors are paying between 48% (Pepcid) and 231% (Zocor) more for each drug. Public Citizen conducted similar surveys in several other states. See (Public Citizen Press Release, 4/19/00).

Women without drug coverage pay an average of 114% more for the five most commonly prescribed outpatient medications taken by breast cancer patients (Worcester Telegram and Gazette, 4/27/00).


Health insurance premiums will rise an average of 9.2% in the California Public Employees Retirement System (CalPERS) next year. Prescription drug co-pays will also double from $5 to $10 for brand-name medications. CalPERS is one of the largest purchasers of health care, with 1.1 million members (Managed Healthcare Market Report, 5/31/00).

Almost half of the 1.3 million Americans who filed for bankruptcy in 1999 did so at least in part because of medical bills. A study by Harvard law professor Elizabeth Warren of bankruptcy filings found that nationwide, 326,441 bankruptcies last year were due to illness or injury, while another 267,575 listed “substantial medical bills.” The majority of the bankruptcies were among people who had medical coverage. The impact of medical bills falls most heavily on single women and seniors; 71 of every 10,000 single American women filed for bankruptcy last year (Norton�s Bankruptcy Advisor, Washington Post, 2/25/00).

Large employers� health benefits costs will increase about 12% on average in 2000, and most expect double-digit increases to continue over the next few years, according to a Towers Perrin survey of 228 Fortune 1000 companies (Employee Benefit Plan Review, March 2000). Workers� share of premiums averaged $145 a month in 1999, up from $122 in 1996, according to the Center for the Study of Health System Change (Physicians Financial News, 5/00)

Single Payer Would Save Money in Maryland

A single-payer system in the state of Maryland could provide health care for all residents and save $345 million on total health care spending in the first year, according to a study by the D.C.-based consulting firm Lewin, Inc. The study also found that a highly regulated “pay or play” system (in which employers either provide their workers with coverage or pay into a state insurance pool) would increase costs by $207 million.

Editors� note: The pro-business Lewin group probably underestimated the administrative savings from single payer and overestimated the administrative savings (and hence understated the costs) of their “pay or play” model. Data from hospitals in Hawaii, where there are only 3 major insurers, suggest that if you have more than one payer, there are few administrative savings. However, single-payer systems in Canada, the U.K., Sweden and other countries have garnered administrative savings substantially larger than assumed by Lewin. Hence, the estimate by Lewin that single-payer universal coverage would cost $550 million less to implement in the first year than “pay or play” is conservative.

Medicare spending on home health care dropped 45% in the last two years, from $17.5 billion in 1997 to $9.7 billion in 1999, according to data from the Congressional Budget Office. Some hospitals report keeping patients longer or readmitting patients more frequently. Home care agencies are shunning patients with chronic, long-term conditions (stroke, diabetes, blindness) in favor of patients needing just a few weeks of care (New York Times, 4/21/00).

An 18 year-old Oregon cystic fibrosis patient awaiting a lung-liver transplant has been denied coverage by the Oregon Health Plan. The plan covers both transplants separately, but won�t cover the combined procedure because it “appears nowhere on the list.” The case has gone to court (Portland Oregonian, 6/13/00).

Medical and Socioeconomic Inequality

The current U.S. poverty level—— $17,050 for a family of four—- is based on a formula created in the 1960�s, when food consumed more of a family�s income than housing and health care. An updated measure of poverty would increase the number of Americans under the poverty line by about 5.5 million people, to 14.8% of the population (Twohey, National Journal, 4/15/00).

Of the 100 largest economies in the world, 49 are nations and 51 are private corporations (Modern Healthcare, 4/24/00).

Middle-aged blacks are four times more likely than whites in the same age group to suffer or die from a stroke, according to the Centers for Disease Control. Middle-aged Hispanics, Asians, American Indians and Alaska natives also are at higher risk of death from stroke (AP, Philadelphia Inquirer, 2/1//00).

Blacks are half as likely as whites to undergo surgery for glaucoma, although the disease is four times more prevalent in black Americans, according to a study of Medicare claims data. The gap has narrowed since the late 1980�s, but still persists (Archives of Opthalmology, AP, 2/15/00).

Nearly half of black (43%) and Latino (48%) Medicare recipients report that they are not in good health, compared to about 25% of whites (Healthcare Trends Report, 3/00).

A record 1.7 million people are currently imprisoned in the U.S. The proportion of the population behind bars has doubled since 1985. Black unemployment - currently at a low of 7.9% - would be as high as 9.4% if prisoners weren�t excluded from employment calculations (Wall Street Journal, 2/1/00).

Over 16% of the nation�s inmates are estimated to have mental illness or substance abuse problems (Baltimore Sun, 3/1/00). As we go to press, New York State Chief Judge Judith S. Kaye announced plans to divert up to 10,000 addicted, non-violent criminals into court-supervised drug treatment as an alternative to incarceration (New York Times, 6/23/00).

The infant mortality rate for African-Americans in Iowa is 20 per 1,000 live births, compared to 5.9 per 1,000 for births to white women (Des Moines Register, 6/1/00)

U.S. teen pregnancies have dropped 17% in the past decade, but at 84 per 1,000 girls aged 15-19, the rate is still the second highest in the industrialized world, just behind Russia. The U.S. teen birth rate (54 births per 1,000 girls) also the second highest, after Armenia. Japan and most Western-European countries report birth rates under 10 births per 1,000 girls. Many of the countries with low pregnancy and birth rates provide more sex education and offer free contraceptives, according to researchers at the Alan Guttmacher Institute (2/24/00).

The U.S. ranks 24th in disability-adjusted life expectancy at birth, according to the World Health Organization. Japan ranks first (74.5 years), followed by Australia (73.2), France (73.1) and Sweden (73.0). The U.S., which spends the most on health, ranked poorly (70 years) because “the bottom 2.5% of Americans have healthy life expectancies characteristic of sub-Saharan Africa in the 1950�s.” War-torn Sierra Leone was at the bottom, with only 25.9 years of healthy life expectancy. The full report is on-line at (Chicago Tribune, 6/5/00).

Pharmaceuticals, Inc

Drug companies have contributed $38.3 million to Congressional campaigns in the last decade, with an increasing share (about 2/3) going to Republicans. (See chart next page.) Sen. Orrin Hatch (R-Utah) received $169,000 from drug companies this year (more than any other Senator), including a $14,000 donation and the use of a company airplane from Schering-Plough. The giant drug manufacturer is seeking patent extension for its allergy drug, Claritin. Two other Senators favoring patent extension - Republican John Ashcroft (R-MO) and Democrat Robert Torricelli (D-NJ) - have received recent $50,000 donations from Schering-Plough (Center for Responsive Politics, 6/00).

Drug companies spent an all-time high of $83.6 million on lobbying last year, employing 297 lobbyists, or “one for every two members of Congress.” In 1997 and 1998 their lobbying exceeded $70 million each year (“Prescription Drugs,”, Center for Responsive Politics).

They�re not citizens, and they�re not for better Medicare.
Citizens for Better Medicare (CBM), a drug company front group anchored by the Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry�s lobbying group, is working overtime to defeat a Medicare prescription drug plan. Their campaign includes over $65 million in TV, radio, and print ads, a massive direct mail campaign, computer-generated telephone push-polls (which make the recipient think they are voting by pushing buttons on their phone when actually the purpose is to influence their opinion), telephoning seniors to urge them to oppose “big government” and then patching them through to their Congressperson, and phone cards for grandchildren to call their grandparents to ask them to fight “price controls.” The campaign, directed by Tim Ryan, former marketing director for PhRMA, is primarily targeting the U.S.- Canadian border states, where seniors have been taking trips to Canada to buy cheaper medications. (Public Citizen, 6/00).

The CEO�s of the top 10 drug companies averaged $20 million in annual compensation in 1998, including stock options. Together they hold $1 billion in stock options (Public Citizen Press Release, 4/19/00).

Drug companies are overcharging Medicare and Medicaid at least $1 billion a year for cancer, AIDS, and other drugs that are administered by physicians. Companies report artificially inflated wholesale prices—-which the Health Care Financing Administration uses to set reimbursement rates—-and then sell the drugs to physicians at deep discounts. Companies being investigated include Bayer AG, Abbott Laboratories, SmithKline Beecham, Glaxo Wellcome, and Bristol-Myers Squibb (Wall Street Journal, 5/10/00).

Medicaid would have saved $27.8 million (34%) on two popular medications if the government received the same discounts as HMOs, as required by federal law. The drug companies claim that HMOs are “repackagers” that sell the medications under their own brand names, hence exempt from the federal law (AP, 2/28/00).

Two U.S. and two German drug companies have agreed to plead guilty and pay $33 million in fines for conspiring to limit vitamin supplies and fix prices worldwide. New York-based Nepera Inc. was fined $4 million and two of its executives were sentenced to prison terms; Reilly Industries of Indianapolis was fined $2 million; and Degussa-Huls was fined $13 million in a niacin (vitamin B3) price-fixing scheme. Merck KgaA was fined $14 million for price fixing vitamin C. Hoffman-LaRoche and BASF AG were previously fined $725 million in the conspiracy (New York Times, 5/6/00).

This is competition? Schering-Plough and Merck are teaming up to extend the patent life of their most profitable medications. The patent rights for Schering-Plough�s Claritin will expire in two years, but the patent on Merck�s asthma drug Singulair does not expire until 2010. The companies have announced that they plan to combine the drugs into one medication, effectively making Claritin off limits to generic manufacturers for another eight years. Similarly, they plan to combine Merck�s cholesterol-reducing drug Zocor with Schering-Plough�s experimental exe- timibe, another cholesterol medication (AP, 5/24/00). In another move to extend a profitable patent, Pharmacia is seeking FDA approval for a combination of its glaucoma drug Xalatan (patent expires in 2011) and the generic, timolol (New York Times, 4/23/00).

Some Medications Are “Unsafe at Any Speed”

The FDA pulled Parke-Davis� Rezulin off the market in March after it was linked to at least 90 cases of liver failure, including 63 deaths and seven organ transplants. Critics charge that Rezulin should never have received “fast-track” approval; at least two FDA scientists raised warnings about the drug prior to approval (Los Angeles Times, 3/23/00).

Janssen�s heartburn drug Propulsid has been linked to 80 deaths, including 19 in children, and hundreds of heart rhythm abnormalities, since being approved in 1993. The company is “voluntarily” pulling the drug off the market but not for several months (Pittsburgh Post-Gazette, 4/27/00).

American Home Products is under investigation for allegedly hiding heart valve problems caused by its diet drug Redux, the “fen” in the fen-phen weight loss combination. The drug was pulled from the market in 1997; a $3.75 billlion class action suit is pending settlement in Philadelphia (Wall Street Journal, 5/16/00).

Several other medications, all approved since 1997, have been removed from the market in the last 30 months. They include: Raxar (grepafloxacin) for causing heart arrhythmias; Duract (bromfenact) for causing liver toxicity; Posicor (mibefradil) for causing heart arrhythmias; and Trovan (trovafloxin) for liver toxicity (Public Citizen, 6/00).

Sparky�s not safe either: The FDA has received reports that 1,000 dogs have died and another 7,000 had bad reactions to Pfizer�s doggy arthritis drug Rimadyl. One consumer group has started the Be Aware of Rimadyl�s Known Side-effects (BARKS) campaign. Pet drugs are a $3 billion business worldwide (American Healthline, 3/13/00).

Public Research, Private Profits

The best-selling glaucoma drug Xalatan was developed by a Columbia University researcher, Dr. Laszlo Bito, with $4 million in grants from the National Institutes of Health. Pharmacia bought the rights to Xalatan for $150,000. Today, the key ingredient for Xalatan, latanaprost, is made at a laboratory in Hungary at a total cost of about $5 million per year. Xalatan generated $507 million in sales for Pharamacia last year, and sales are projected to increase to $750 million by 2002. Pharmacia spent 40% of its revenues on marketing and administration last year, more than twice what it spent on research. Pharmacia and Monsanto merged last year.

A 1995 study by MIT found that, of the 14 new drugs the industry identified as the most medically significant in the preceding 25 years, 11 had their roots in studies paid for by the government. A 1997 study commissioned by the National Science Foundation determined that of the most significant scientific research papers cited in medicine patents, one-half were paid for with U.S. public funds and only 17% were funded by industry (the rest were funded by foreign sources) (New York Times, 4/23/00).

Drug Marketing and Doctors

Drug companies spend more than twice as much on “marketing and administration” as they do on research and development ($26.4 billion last year). At Pfizer, for example, overhead and marketing make up 39% of expenses, compared with 17% for R&D. (WSJ, 7/6/00). Drug companies spend between $8,000 and $13,000 per physician in promotions annually. Physicians who have regular interactions with sales representatives are more likely to have “non-rational” prescribing habits, according to a review of 29 recent studies. Physicians interact with drug sales representatives an average of four times per month (Wynia, JAMA, 1/19/00).

In 1999 the industry spent more than $6.2 billion to detail products to physicians (American Medical News, 4/10/00) Drug manufacturers spent $1.9 billion in direct-to-consumer advertising last year, and a total of $6.1 billion on advertising and marketing (excluding sales representatives� salaries). They employ 70,000 U.S. salespeople at a cost of an additional $7 billion a year. (Congress Daily, 4/10/00, Wall Street Journal, 7/6/00)

The new editor of the New England Journal of Medicine, Jeffrey Drazen, M.D. was cited by the FDA last year for making “false and misleading” statements about the asthma drug, levalbuterol. Drazen received $7,000 from the drug�s maker, and has ties to another 20 drug firms (USA Today, 5/31/00). “Academic researchers should be able to own substantial stock in a company or accept sizeable consultant fees and still accept research support,” according to Drazen. (California Healthline, 5/26/00).

The New England Journal of Medicine apologized for violating its own financial conflict-of-interest policies nine times since 1997 in “choosing experts to review drug therapies.” For example, the journal published a favorable review of hair-loss treatments by Dr. Vera Price, who received $1.7 million in research funding between 1994 and 1999 from Merck and Pharmacia Upjohn. One of the articles cited was by new editor Dr. Jeffrey Drazen. (Los Angeles Times, 2/24/00).

Corporate Money and Care

Group and staff-model HMOs had only 10.2% of total HMO enrollment last year, down from 40.2% in 1990. For-profit HMOs� share of total HMO enrollment grew from 12% in 1981 to 64.2% in 1999 (Healthcare Trends Report, January 2000).

Administrative costs at HMO�s averaged 16.4% in the third quarter of 1999. Put another way, the “loss ratio” was 83.6% (American Medical News, 2/21/00).39% of physicians say they “sometimes” exaggerate a patient�s illness to avoid early hospital discharge, list inaccurate diagnoses on bills or report non-existent symptoms, according to a survey of 720 physicians. 29% of physicians report that gaming the system is necessary to provide high quality care. Transplant physican Dr. John Fung at the University of Pittsburgh Medical Center said “we do it because we think it is right. We do it for the patients.” (Wynia et al, JAMA, 4/11/00; ABC

CEO Pay Tops $40 Million at HMOs

HMO executives at 17 for-profit HMOs received $42 million in pay and $87 million in stock options last year. Executive pay was up 14% despite a 15% decline in average stock price at the 17 firms. The most highly paid HMO executive last year was Cigna�s Chairman Wilson Taylor, who received $7.5 million in compensation, excluding stock options. William McGuire, M.D., CEO of United Healthcare, was second highest paid with $4.8 million in compensation in 1999, followed by Edward Hanway (Cigna, $3.9 million), Greg Wolf (Humana, $3.7 million), and Leonard Schaeffer (Wellpoint, $3.3 million) (Managed Healthcare Market Report, 5/15/00).

Aetna�s former CEO, Richard Huber, received $3.6 million in severance pay, plus an office and an assistant for 88 weeks. Huber was forced to resign in February after the firm�s stock dived 50%. Aetna�s new CEO is William Donaldson, the former chair of the New York Stock Exchange. Aetna plans to split into two companies, one to focus on its health insurance business, the other on financial services and international insurance (Hartford Courant, 3/13/00).

Leonard Abramson, former CEO of U.S. Healthcare, resigned from Aetna�s Board of Directors in June. Abramson has been receiving $3 million a year from Aetna as part of Aetna�s 1996 purchase of U.S. Healthcare, a deal that paid Abramson $967 million and the company jet. Last year, Aetna also paid a communications firm owned by Abramson�s daughter $7 million in fees and his son-in-law $150,000 for unspecified reasons (New York Times, 2/26/00, Wall Street Journal, 3/23/00, Wall Street Journal, 6/7/00).

Oxford is paying four departing executives more than $7 million in payments and loan forgiveness (Hartford Courant, 3/21/00).

The for-profit dialysis firm Fresenius, formerly National Medical Care (NMC), was fined $385 million in civil penalties and $101 million in criminal penalties for Medicare fraud. The fines were the largest in a five-year anti-fraud campaign involving health care companies that has recovered more than $2 billion for the Medicare Trust Fund. The largest previous settlements were $379 million from psychiatric hospital chain National Medical Enterprises (now Tenet); $325 million from a laboratory unit of SmithKline Beecham; and $255 million from First American Health Care, a laboratory business based in Georgia.

NMC pled guilty to criminal conspiracy to defraud Medicare in three units �LifeChem Inc. Labs, NMC Homecare, and NMC Medical Products. The units were accused of billing for disputed intravenous feeding of dialysis patients and unnecessary blood tests, and violating anti-kickback laws by providing payments, yacht trips, and bear-hunting excursions in Alaska to attract potential customers for its blood-testing business. Three former Fresenius officials have been indicted in federal court in Boston. Two others have pled guilty and await sentencing (Washington Post, New York Times, 1/20/00)

A study of the nation�s 3,000 kidney dialysis centers revealed “major shortcomings,” according to the U.S. General Accounting Office (GAO). Medicare has issued warnings against 481 facilities, but only kicked three centers out of the program in the past seven years. More than 40% of centers have not been inspected for three years or more, and quality lapses threaten patient care, including medication overdoses and exposure to disinfectants or viruses from reused equipment (USA Today, 6/26/00 and GAO).

Pediatric Guidelines Unsafe

The pediatric inpatient guidelines sold by Milliman and Robertson are “dangerous,” according to Dr. Thomas Cleary, head of pediatric infectious diseases at the University of Texas-Houston Medical School. “Kids might die because of these guidelines,” Cleary recalls saying when he was shown the guidelines in 1998. That didn�t stop the company from listing him as a “contributing author,” and attempting to portray the guidelines as the result of medical school research. Cleary and Dr. William Riley, a pediatric endocrinologist, are suing the firm and a colleague for using their names. Riley is especially outraged that the guidelines recommend that children with diabetic coma be released after one day - a recommendation “so clearly outside of any reasonable approach to the standard of care as to be wholly reckless.” Cleary told the New York Times that there is at least one risky recommendation on each page of the 400-page document, published in December 1998 under the euphemistic title “Pediatric Health Status Improvement and Management” (New York Times, 3/14/00).

For several years, Cigna omitted information about smoking hazards in its quarterly publication “Well-Being” sent to employees at Philip Morris� tobacco and beer operations. Cigna agreed to “remove or edit pieces Philip Morris found objectionable,” such as advice that asthmatics should avoid smoke. The practice was uncovered during a lawsuit filed in Minnesota against cigarette makers (Wall Street Journal, 2/4/00).

Aetna issued a formal apology for “selling policies in the 1850�s that reimbursed slave owners for financial losses when their slaves died,” noting that “slave policies were legal before slavery was abolished.” (Philadelphia Inquirer, 3/10/00).

Actor Christopher Reeve, paralyzed five years ago in a horseback riding accident, urged medical school graduates in New Jersey to beware the current “profit-driven” and “corrupt” health system. “The people you�ll work for - hospitals, HMOs and insurance companies - are big on doing the least for patients, whereas you�ve studied to do the most.” Reeve urged the UMDNJ- New Jersey Medical School graduates to “never forget the compassion, caring, and generosity of spirit that made [them] want to be doctors.” (Bergen Record, 5/22/00).

The Supreme Court ruled unanimously in June that patients cannot sue HMOs for giving doctors financial incentives to ration care, even if such incentives result in mistreatment. However, they left open the possibility that health plans may be liable for not disclosing such arrangements, according to attorneys active in lawsuits against HMOs.

Justice David H. Souter wrote for the court that “no HMO organization could survive without some incentive connecting physician reward with treatment rationing.” “Since the provision of profit is what makes the HMO a proprietary organization,” allowing federal lawsuits on the basis of financial incentives “would be nothing less than elimination of the for-profit HMO” (The case is Pegram vs. Herdrich, 98-1949,; New York Times, 6/13/00).

Blue Cross and Blue Shield plans in New York, Maine, New Mexico and Wisconsin are converting to for-profit status. Indiana�s Anthem, a giant for-profit insurer, bought the Maine Blue Cross and Blue Shield plan for $100 million. Anthem has also purchased or merged with Blues plans in Kentucky, Ohio, New Jersey, Connecticut, and New Hampshire (Consumers Union Update, 5/31/00).

Kaiser says it will end its policy of forcing its San Diego-area psychiatrists to prescribe medication for patients they haven�t seen. Kaiser psychiatrists were expected to prescribe medications based upon the recommendations of social workers. Dr. Thomas Jensen was fired by the HMO for refusing to comply and took Kaiser to court. Kaiser officials defended the policy, saying that “it allowed Kaiser�s psychiatrists to see more patients by eliminating a potentially duplicative initial interview” (Physicians Financial News, 5/00, Los Angeles Times, 4/12/00).

Hospitals and Nursing Homes, Inc.

Columbia/HCA Healthcare will pay the federal government $745 million to partially settle charges that the company “systematically defrauded” Medicare. Some of the company�s practices included “upcoding,” improperly bundling unnecessary tests with simple blood tests, reporting marketing expenses as “community education,” and billing for home care services for ineligible patients. The settlement is the largest ever obtained by the Justice Department. Criminal charges against Columbia for defrauding Medicare and engaging in illegal financial relationships with doctors are still pending and the company could face hundreds of millions of dollars in additional fines (Wall Street Journal, 5/19/00). A week after it was ordered to repay the government $745 million, the company announced that it is changing its name to “HCA - The Healthcare Co.” The Nashville-based company owns 200 hospitals and 80 outpatient surgery centers in 24 states (New York Times, 5/26/00).

Jay Jarrell, former president of Columbia/HCA�s southwest division, was sentenced to 33 months in jail and fined $10,000 for his role in defrauding Medicare. Jarrell and former Columbia executive Robert Whiteside were convicted last July of six counts of conspiracy and defrauding Medicare (AP, 12/23/99).

Three former executives of the Allegheny Health, Education, and Research Foundation were charged with liquidating $52 million in charitable endowments. (Pittsburgh Post-Gazette, 3/16/00).

Allegheny Health Systems, which went bankrupt and was sold to Tenet, was not the only struggling hospital in Pennsylvania. About 60% of Philadelphia-area hospitals lost money in 1999, according to a report by the Pennsylvania Health Care Cost Commission. Increases in uncompensated care and low occupancy rates were cited as some of the reasons (Philadelphia Inquirer, 6/9/00).

Beverly Enterprises, the nation�s largest nursing home chain, agreed to pay a $170 million civil settlement, a $5 million criminal fine, and sell 10 of its nursing homes to settle Medicare fraud charges. The company�s California subsidiary, Beverly-California, pled guilty to criminal fraud. Beverly is required to sell 10 homes that engaged in false billing practices or face Medicare exclusion for those homes. The company has 550 remaining facilities. Investigators accused Beverly of bilking the government of $460 million between 1992 and 1998 by exaggerating nursing costs and submitting phony documents. A Justice Department official commented that some long-term care firms have “incorporated defrauding Medicare as part of their business strategy.” (Washington Post, 2/4/00)

One in ten nursing homes are in bankruptcy. Maryland-based Integrated Health Services, one of the nation�s largest nursing home companies with 400 homes and 45,000 patients, filed for Chapter 11 bankruptcy in February. The company reported assets of $3.6 billion and debts of $4.1 billion, which analysts attributed to an overly aggressive acquisition strategy and the Balanced Budget Act cuts. The firm is also the subject of a Medicare fraud investigation (Baltimore Sun, 2/3/00).

Vencor, Inc. owes the government $1.3 billion as a result of Medicare fraud (including the triple damages provided by law). It�s unclear how much the agency can recoup as the company is in Chapter 11 bankruptcy (Washington Post, 3/14/00).

Also in bankruptcy are Sun Healthcare Group and Mariner Post-Acute Network. The four large bankruptcies account for collective liabilities of $10.6 billion (Modern Healthcare, 3/20/00).

Medicare HMOs

HHS investigators uncovered $4.7 million in “questionable administrative costs” at nine Medicare HMOs. One insurer charged Medicare for $249,283 on food, gifts, and alcohol; four HMOs billed Medicare $106,490 for sporting events and theater tickets (including $25,057 to lease a luxury box at a sports arena); another HMO spent $37,303 on wine, flowers, and other gifts.

Administrative costs are as high as 32% of premiums at Medicare HMOs, according to an HHS study of 232 Medicare HMOs. The HHS report recommends a 15% cap on administrative spending (USA Today, 2/4/00).

Medicare HMOs Drop 1.6 Million Seniors Since 1998

Medicare HMOs are dumping coverage for another 935,000 seniors, in addition to the 730,000 seniors they dropped in the previous two years. Aetna announced it will end coverage for 355,000 seniors in 11 states next year. Cigna is cutting coverage for 104,000 seniors in its HMOs. Other major HMOs dropping seniors include Foundation Health Systems, Oxford Health Plans, Sierra Health Systems, and Pacificare. In the last two years, Medicare HMOs have pulled out of 400 counties in 33 states, discontinuing coverage for 1 of every 9 beneficiaries in HMOs. About 6.2 million seniors, or 16%, are in HMOs (New York Times, 6/3/00, 7/25/00, Washington Post, 6/29/00).

Kaiser announced its D.C. plan will not accept any more senior enrollees after August 8. Kaiser does not want to be “flooded” by the 50,000 seniors whose coverage is being discontinued at the end of the year by three area HMOs (Washington Post, 7/8/800).HMOs overbilled Medicare for $4.2 million in premiums for patients who are dead, according to a report by HHS. About $1.2 million of the overpayments have been recovered (AP, 3/2/00).

Humana agreed to pay Medicare $14.5 million to settle charges of overbilling between 1990 and 1998. The government accused Humana of falsely classifying thousands of seniors, mostly from south Florida, as eligible for both Medicare and Medicaid to collect extra payments (Wall Street Journal, 6/7/00).

Presidential Candidates� Health Proposals

Governor George W. Bush�s health care proposals include: converting Medicare into an HMO voucher program; promoting medical savings accounts; a $2,750 tax deduction for caring for an elderly dependent at home; 100% tax-deductibility of long-term care insurance; partial prescription drug coverage for seniors (see below); tax credits up to $1,000 for a low-income individual, or $2,000 for a low-income family, to buy insurance.

According to Jonathon Gruber, an economist at MIT, even generous tax-credits costing $13 billion a year would only reduce the ranks of the uninsured by 4 million, leaving 40 million Americans uninsured. Vouchers would increase Medicare�s costs (as Medicare HMOs have done) and leave tens of millions of seniors without secure coverage; 1.6 million seniors (out of a total of 6.2 million who enrolled) have been dumped by Medicare HMOs in the last three years. Benefits have plummeted and premiums have increased dramatically for the remaining enrollees.

Vice President Al Gore�s proposals include: expanding the Children�s Health Insurance Program (CHIP) to children up to 250% of poverty; allowing parents of uninsured families to buy into CHIP or Medicaid with a 25% tax credit; and partial prescription drug coverage for some seniors (see below).

Gore�s proposals would expand access modestly but leave tens of millions of Americans (including children and seniors) uninsured and underinsured. Most of his proposed new government spending would be funneled through private insurance.

Ralph Nader�s proposals include: not-for-profit single-payer national health insurance including medication coverage, eliminating price-gouging by pharmaceutical companies, and strengthening health and safety regulations at work and for medications and other consumer products. Nader also supports increasing NIH research into cancer and other diseases.

Nader�s proposals would put the U.S. in the ranks of other industrialized countries that assure health care.

Medicare Prescription Drug Proposals

As we go to press, Congress is still divided on prescription drug coverage for Medicare. None of the proposals so far would provide full coverage to all seniors, or take advantage of Medicare�s buying power to command discounts. In the U.K, 92% of seniors report having no out-of-pocket drug costs and 7% of seniors spend less than $50 a month on medications (see chart, page 15).

The Republican plan would give Medicare enrollees the option of purchasing private drug coverage - despite the fact that insurance companies say they won�t sell it because “those most likely to have high drug expenses would be most likely to buy it,” according to Chip Kahn of the Health Insurance Association of America. Republicans say they would also direct the U.S. trade representative to negotiate with other countries to “eliminate price controls” on drugs in Canada and Europe. The Republican plan would also pay insurers a subsidy of 30% of their total drug costs � making insurers and the drug industry the major beneficiaries of the plan (New York Times, 6/12/00).

The Democrats� drug proposals would give Medicare enrollees the option of purchasing drug coverage (at premiums starting at $25 per month and going up to $50 per month). This coverage would be administered by Medicare and have defined benefits. The benefits would include a 50% co-pay and have a cap of $4,000 to $6,000, above which no cost-sharing would be required (Families USA, 7/00) Unfortunately, millions of seniors would continue to lack adequate coverage.

Legislative Update

Rep. John Tierney (D-MA) introduced a bill making states eligible for nearly $4 million in grants to assist them in developing plans for universal coverage. States with approved plans would also receive federal Medicare and Medicaid waivers and one-time implementation grants of $10 million plus $3 per capita (States� Right to Innovate in Health Care Act of 2000, HR-4412, see www.thomas.loc for details).

Sen. Paul Wellstone (D-MN) introduced legislation promoting a state-by-state approach to universal coverage (S. 2888). States would have a maximum of five years to design and implement their plans (including possible single-payer programs as well as Medicaid expansions or other failed solutions). States could receive matching federal funds for up to five years. The bill would limit cost sharing by family income, with families under 150% of poverty limited to paying 0.5% of family income for health care, and middle and upper-income family cost-sharing capped at 5% and 7% of family income, respectively. The bill lacks restrictions on for-profit delivery systems (Wellstone Press Release, 7/19/00, see www.thomas.loc).

Rep. Barbara Lee (D-CA) introduced legislation in May to create a United States Health Service (HR-3000). “The USHS would be owned and controlled by the public and administered primarily at the local level.” Lee picked up the struggle from her predecessor, Rep. Ron Dellums. (Legislation is available on the www.thomas.loc web site).

Eighteen states have bills pending to mandate drug discounts. Maine passed a law in May that allows the state to negotiate drug prices on behalf of more than 300,000 residents and to impose price limits starting in July, 2003 if negotiations with manufacturers fail to significantly reduce prices (AP, 5/12/00).

Massachusetts passed similar, though weaker, legislation last year to allow the state to negotiate discounted prices for the uninsured, state employees, and Medicaid recipients (Wall Street Journal, 12/13/99).

California started a program in February giving people on Medicare access to the same discounts as the state gets for its Medicaid patients (LA Times, 2/14/00).

The Governors of Maine, New Hampshire, and Vermont announced plans to create a regional pool for drug purchases for the estimated 30% of the tristate population that lacks drug coverage (Bangor Daily News, 7/18/00).

Public Opinion

It�s old, but we hadn�t seen it! A 1998 survey by Zogby, the Republican polling firm, found that 51% of Americans would favor a “government-run health care plan that covers everyone in the same way, like the system used in Canada. It would be paid for through taxes and cover all necessary medical costs.” Despite the negative descriptors, e.g. “government-run,” “covers everyone in the same way,” “taxes,” only 38% were opposed (Fairness and Accuracy in Reporting, 2/17/00).

Public hostility to HMOs grew for the fifth straight year, according to a Harris Poll. The phone survey of 1,000 adults found that 59% believe that HMOs compromise the quality of medical care, up from 39% in 1995 (Harris Poll press release, 7/19/00).

International Update

Health care costs are 14% of GDP in the U.S., or $4,270 per person in 1998, compared to an average of 8% of GDP, or $2,000 per person, among the 23 countries of the Organization for Economic Cooperation and Development (OECD). The U.S. ranks in the bottom half of OECD countries in life expectancy and infant mortality (Anderson et al, Health Affairs, 5/00).

The Alberta legislature passed a controversial bill (Bill 11) in May allowing the province to contract with private, for-profit facilities for outpatient surgery. The bill passed despite repeated public protests and national opposition. Canada�s Health Minister Allan Rock said “Bill 11 is not the direction in which we should be heading to strengthen our publicly-funded healthcare system. We have grave reservations about investing public funds in private, for-profit facilities” (Allan Rock press release, 5/11/00).

While budget cuts have affected public perceptions of the Canadian health system, three recent articles on hospital and surgical care find that the system held up and even improved in some areas during the mid-1990�s.

In Manitoba, median waiting times for most procedures remained stable or fell between 1991 and 1996. However, cataract surgeons who operate in both public and private facilities had much longer waits than surgeons without private practices, suggesting that some surgeons may prolong waits for public patients in order to increase their private practices (“Waiting times for Surgical Procedures,” DeCoster et al, Medicare Care, 1999;37:187-205).

A study of the 1992 budget cuts on Manitoba�s teaching hospitals revealed that few beds were closed, and spending per case actually rose. In addition, when expenditures on new hospital programs and expansions were accounted for, the hospitals� budgets fell less than 1% between 1991/92 and 1993/94. During the period studied, “the provincial hemodialysis program was expanded, a new Psychiatric Health Center was opened, pediatrics was consolidated at one teaching hospital, and the eye surgery program was consolidated at one center, with an expansion in cataract surgery. Each of these involved additional program funding to specific hospitals” (“The Unintended and Unexpected Impact of Downsizing: Costly Hospitals become More Costly” Shanahan et al., Medicare Care, 1999;37:123-134).

A study of hospital bed closures in Winnipeg since 1992-1993 found that about the same number of patients were cared for in 1995/96 as in 1991/92. However, there was a large increase in the number of high-profile surgical procedures, such as angioplasty, coronary artery bypass, and cataract surgery. Mortality and readmission rates did not increase, and there was a decrease in waiting time for nursing home placement (“Monitoring the Impact of Hospital Downsizing on Access to Care and Quality of Care,” Brownell et al., Medicare Care, 1999;37:135-150).

India is considered one of the next big export markets for managed care. Legislation opening the insurance market to competition and allowing foreign investors to hold up to 26% ownership passed recently after several years of discussion. (Employee Benefit Review Plan, 3/00).

Articles of Note:

Angell M. “The Pharmaceutical Industry - To Whom is it Accountable?” NEJM, June 22, 2000.

Gerth J, Stolberg SG, “Medicine Merchants: Drug Companies Profit from Research Supported by Taxpayers” New York Times, April 23, 2000.

Gaffney D, Pollack A, Price D, and Shaoul Jean. “The Politics of the Private Finance Initiative and the New NHS” BMJ 24 July, 1999, 249-253.

Marmor T and Sullivan K, “Canada�s Burning: Media Myths about Universal Coverage,” Washington Monthly July/August 2000. pgs 15-20.

Powell Ian. “Intellectual Origins and Principles of the Internal Market in New Zealand,” New Zealand Medical Journal, 24 March, 2000, 101-104. Enthoven�s pro-market ideology hits New Zealand.

Turshen M. Book review of Disinvesting in Health: The World Bank�s Prescription for Health Mohan Rao, editor. Journal of Public Health Policy, Vol 20, No. 4, 242-243. A collection of articles on the devastating impact of health privatization in India.

Waitzkin H. “How the U.S. Exports Managed Care to Other Countries” Monthly Review, May, 2000.

New Books:

Dying for Growth: Global Inequality and the Health of the Poor. Ed. Kim, Millen, Irwin, and Gershman. Common Courage Press, 608 pages, $29.95, paper (207) 525-0900.

Understanding Health Policy: A Clinical Approach. Second edition. T. Bodenheimer and K. Grumbach. Appleton and Lange, $34.95 paper (800) 423-1359.

The Second Sickness: Contradictions of Capitalist Healthcare. Revised and Updated Edition, January, 2000. Howard Waitzkin. Rowman & Littlefield, $25.95 paper, $69.00 hardback (800) 273-5720.

National Health Reform American Style: Lessons from the Past Norbert Goldfield, ACPE, $34 (813) 287-2000.

Clear Answers: The Economics and Politics of For-Profit Medicine (in Canada). Kevin Taft and Gillian Steward. The University of Alberta Press, Duval House Publishing, Parkland Institute, 128 pages, $9.95 paper (780) 492-8558.