Re: Cell Phone Regulation

Require Extra Insurance for Drivers who Use Cell Phones

� Address the Market Failures

In perfect market conditions, drivers would use their hand-helds only if it was worth the risk. Three imperfections impede efficiency:

�Imperfect Information. Most drivers are unaware of the danger.

�Cognitive Biases. Even if informed, many would respond irrationally. Chief culprits here are insensitivity to small probabilities, overconfidence, and cognitive dissonance.

�Negative Externalities. Accidents caused by cell phones impose costs on other drivers and on pedestrians. Cell phone users don't weigh these costs, because they won't suffer the loss. Doubly troubling, although unrelated to economic efficiency, is the distributional result: cell phone owners, who are richer than average, impose the cost on everyone else.

� Life-Saving Regulatory Options are Difficult to Compare

Bans, even of hand-helds, have been rejected. Remaining options vary in how many lives they would save. As even statistical lives are normally considered unmonetizable, cost-benefit analysis is inappropriate. Cost-effectiveness analysis, on the other hand, would provide a clear choice only among options likely to save similar numbers of lives. Still, the following recommendations should be considered tentative until full-scale CEA has been done.

� Information Disclosure Fails as a Fix

Mandatory warning labels on cell phones might solve the informational problem, at least if people read them. Unfortunately, even the scariest label couldn't overcome the heuristics problems, so drivers would ignore them. And labels do nothing to reduce the externalities.

� Manufacturing Standards Fix Too Much

Even without a ban, the government could require safer new products: for example, all new cellulars could have headphone jacks, or all new cars could have cell phone holders beside the driver's ear. Done properly, either a design or performance standard, based on existing or expected technology, could save most or all the lives currently lost to cell phones. Two problems make it a bad idea:

�Poor Allocation. The externalization should be resolved by making drivers who use cell phones bear the costs. Manufacturing standards would burden all phone or all car purchasers.

�Rigidity. No one knows what will work best, and failing standards are hard to expunge.

� Cell Phone Car Insurance is the Right Fit

Drivers using cell phones should be required to buy special collision and liability insurance. To aid enforcement, a prominent sticker would be displayed on cars insured for cell phone use. Uninsured drivers using cell phones could be ticketed, or their licenses could be suspended.

�Insurers do the Thinking. This solution dodges both the informational and cognitive market imperfections, because insurers, not drivers, would evaluate the risks.

�Internalization. Through premiums, risk-takers would bear the costs of their behavior.

�Little Moral Hazard. Cognitive biases prevent drivers from taking rational account of these risks under any circumstances. The benefit comes from those who do not buy insurance

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1. REQUIRED WARNINGS TO CONSUMER (DISCLOSURE OF DANGER)

Such a regulation would require manufacturers to attach some form of warning on all cell phones concerning the dangers involved with using a cell phone while driving and specific statistics if obtainable.

� Pros: A warning of this sort would help eliminate market failures. People may not be aware of the dangers involved with driving while using their cell phones and are unknowingly purchasing their phone for this purpose. This is inefficient and preventable. A warning would help correct this failure by encouraging people to select the best option for their desired usage. The warning may be particularly effective if it is able to overcome cognitive biases by anchoring the warning to something concrete such as equating the consumer’s behavior with drunk driving (assuming the statistics can be substantiated). This form of regulation also has the benefit of discouraging only the dangerous use of phones, not all use.

� Cons: Individuals may ignore the warning or assume that the consequences would not happen to them because they are "good drivers." In addition, using statistics to substantiate the warning could confuse drivers and cause them to disregard the warnings.

� Conclusions: Required disclosure of safety information would be a good choice for regulating cell phone usage. At the present time, manufacturers lack the incentive to disclose this information since it is harmful to their business. Required warnings could alleviate this failure. In addition, utilizing some form of anchoring would help drivers comprehend the risks involved and accept the warning’s message.

2. TAX CELLULAR PHONES IN ORDER TO COMPENSATE VICTIMS AND INSURERS

This method of regulation would involve placing a form of sin tax on cell phones, the proceeds of which could be used to help compensate those injured in accidents resulting from cell phone usage.

� Pros: A tax would force consumers to internalize the true costs of cell phones. If consumers are underestimating the risk of injuring themselves or others when using cell phones, they are missing a central part of a utility equation. If a tax were instituted that is equivalent to the injuries caused by cell phones, consumers would have to consider this additional cost in deciding whether to purchase a cell phone, thereby helping the market reach equilibrium

� Cons: Taxing cell phones distributes costs among all users, not just those who use cell phones dangerously. This would prevent the market from operating efficiently. There is no reason to discourage cell phone use outside a car (unless cancer studies are true). In addition, it is very difficult to determine the appropriate tax rate that would help the market reach true equilibrium.

� Conclusions: A taxation plan would not be effective. It would have adverse effects on the market and would be costly to implement. In addition, setting the tax rate would be imprecise and arbitrary.

3. SETTING A PERFORMANCE STANDARD

Another form of regulation would be to require manufacturers to develop cell phones that minimize interference with a driver’s abilities.

� Pros: Manufacturers would have the ability to design cell phones however they choose, provided they meet the standard set. Most likely, such a standard would involve some objective measurement of the amount of concentration required to utilize the phones, the need for hands to operate the phone, and ability to operate without requiring visual contact. The administration would set some maximum performance standard, which could not be exceeded. Manufacturers would have the ability to develop their own innovations and determine how best to meet their consumer’s needs within the restrictions.

� Cons: Such a standard would burden all consumers with higher costs, including those who do not operate the phones in a dangerous manner. In addition, developing an objective standard with these criteria would be extremely difficult. Some consumers may be able to operate some phones better than others.

� Conclusions: This standard would be very difficult to implement and would not be very effective at targeting the desired behavior. Costs would be raised for all cell phone users.

Regulating the manufacturer would be easier and more efficient than customer focused regulation. In addition, of the different ways to regulate the manufacturer, it appears that information disclosure would be the best option.

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SUBJECT: Limited regulation of cell-phone use in automobiles Question #1

1. NHTSA could phase-in design standards for the automobile industry. Currently, even safety conscious consumers are unable to use their cell-phones in a hands-free manner. We could target either the telecommunications or automobile industry for regulation. Within telecommunications, we could mandate that cell-phones be sold with hands-free adapters. Alternatively, we could mandate that auto manufacturers include hands-free devices that work with any cell-phone in their console designs.

a. The automobile market is a better target because we have a history of success in the industry. To compare different standards, we could utilize our existing network of contacts and experts to gather information. Moreover, we already have processes in place to monitor compliance and facilitate enforcement. However, anti-competitive effects that limit innovation in the design and the delays involved with judicial review of the standards pose problems. Perhaps we should open the standard setting process to the telecommunications as well as the automobile industry. Although increasing the number of parties will lengthen time to market, it ensures a lasting standard that is not arbitrary.

b. Powerful interest groups will lobby against standards that increase cost. Mandating that manufacturers sell hands-free adapters will increase cost to all users – even ones that do not drive. The telecommunications industry and the Internet lobby have invested heavily to build a wireless infrastructure and will fight regulation that adds to cost. Moreover, even if a hands-free adapter is sold with the cell-phone, there is no guarantee that the user will remember to bring it to the car. The automobile industry will oppose universal cost increases in the price of cars, but should be easier to persuade since it is much easier to bury the increase in a more expensive product.

c. Effective standards for automobile cell-phone use will prepare consumers and industry for subsequent regulation. Cell-phones will not be the only distractions for drivers. Drivers will be able to browse the Internet, purchase products, and trade stocks. The AutoPC will require additional regulation by NHTSA. It is best to get buy-in and understanding now. Certainty of future regulation also makes a design standard preferable to a performance standard. Although design standards are significant entry barriers, at least we can ensure that future devices will properly interface.

2. NHTSA could provide financial incentives for consumers to adopt safer cell-phone practices. One fiscal option is to tax cell-phone use so that it is limited to emergencies. Such a tax, however, will be regressive and also lower all cell-phone use. While demand is inelastic amongst the rich, the poor cannot afford additional price increases. Another option is to distribute findings of fact or alter tort law to promote larger recoveries in private suits. However, the courts will find it difficult to determine whether a cell-phone was truly responsible for a collision; cell-phone use does not leave traces like drinking and driving. Moreover, our monitoring function would be compromised. With such a heavy penalty, no one would report cell-phone-related accidents. Perhaps we should offer positive incentives instead. In conjunction with setting standards, we can lobby insurance companies to offer reduced rates for cars that include hands-free devices. We would even encourage adoption within the large used car market. Unfortunately, the scheme is inequitable in application. A person with neither a cell-phone nor a hands-free device is likely to be a safer driver, but will pay more. The insurer cannot properly determine which of its customers is a cell-phone user to price discriminate.

3. NHTSA could educate the consumer on the dangers of cell-phone use in cars. Primarily, consumers need to understand that they are at risk; we need to dissuade overconfidence. The media can play both a beneficial and harmful role in this process. By presenting identified lives, they can drastically increase awareness of the danger, but also create political opposition to our reforms. It can take many years to determine the best standard. Media hype may force us to promulgate an inferior standard simply because it is available today. Similar to airbags and seatbelts, our role should be to teach consumers how to protect themselves today, until better technological solutions become available. The program should not be limited to discouraging hands-free use. Proper education now will create safer drivers when the AutoPC arrives.

TO: SENATOR JONES

FROM: YOUR HUMORLESS POLICY ADVISOR

RE: PHARMACEUTICAL PRICE CONTROLS

INTRODUCTION

Price controls seem politically attractive, but policy ramifications give reason to rethink this approach.

POLITICAL IMPLICATIONS

Political Benefits to the Proposals:

- Short term savings would garner votes among Medicaid patients and especially the elderly.

- The economic opacity would hinder informed public opinion against the program.

- A political battle with pharmaceutical corporations.

- Opposition from physicians over shortages.

- Private insurers’ resistance.

- International opposition to price controls.

SUGGESTED PROPOSALS

INTERNATIONAL EQUALIZATION: ENDING PRICE DISCRIMINATION

- International prices would rise to stabilize corporate revenue. If the companies could not recuperate development costs through price discrimination, international prices would rise to compensate.

- Selective marketing could make price controls ineffective. By selling some drugs only in the U.S., and selling substitutes only internationally, companies could avoid establishing a baseline for limiting costs.

- With international licensing and subsidiaries, companies could bypass the U.S. entirely.

TYING MEDICARE AND MEDICAID PHARMACEUTICAL PRICES TO THE CPI: PRICE CAPS

- No controls are placed on the increased number of prescriptions. Costs have risen not only due to more expensive drugs, but also an increase in the number of drugs prescribed.

- New drug prices would be artificially high to cover additional costs. Faced with limited ability to adjust prices of existing drugs, companies could exploit monopoly rents from newly patented drugs.

- Drug costs will be shifted to private insurers and the uninsured in the form of higher prices.

TYING GROWTH OF MEDICARE AND MEDICAID PHARMACEUTICAL EXPENDITURES TO GDP: GLOBAL CAPITATION

- Don’t get sick in December. Global capitation leads to year end shortages. Beneficiaries could be forced to go without drugs once the cap was reached. Individuals might hoard drugs early in the year.

- GDP proportionality does not account for the aging generation. As baby boomers age and contribute less to GDP, expenditures on pharmaceuticals will increase dramatically. Medicare will fall short.

- Capped growth limits industry’s ability to shift from less efficient procedures to efficient pharmaceuticals.

- As manufacturers face lower revenues, research and development of new drugs will decline. - Intergenerational effects must be considered in the analysis of lower prices vs. foregone drugs.

- Lower prices would result an increase in quantity demanded and subsequent shortages of many drugs.

- If any drugs evade controls, those with inelastic demand (the most needed) will see increased prices first.

- The institutionalization of the program would likely result in more bureaucracy and inefficiency.

CONCLUSION

Price controls are like plugging leaks with a pitchfork: while trying to fill one hole, you make three more. Each plan limits prices in one area, but it is questionable whether any single plan reduces prices enough to overcome the other negative costs it creates elsewhere. A more feasible price-cap program could come from a moderated hybrid of the three programs with spending considered per capita rather than in the aggregate, but this still seems doubtful.

+There will be no shortage. There are currently large mark-ups for pharmaceuticals, at reduced prices the companies will still be making significant profits and they will continue to produce.

+This is likely to be the most politically popular solution. We can play up national sentiment - why should foreign nations get our drugs cheaper than we do? However:

+ CPI is a reasonably fair index to tie prices to - it is likely to be an accurate indicator of rising costs to the drug companies in their manufacturing. However:

+There would be a fixed limit on pharmaceutical spending in these programs. However:

- GDP is less likely to be an appropriate measure than CPI because it less likely to effect manufacturing costs. It is also less stable - the GDP can vary significantly from year to year.

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Capping Medicare and Medicaid spending on prescription drugs will ensure that the government's share of drug costs remains constant as a percentage of GDP. Gradually increasing total expenditure will create incentives for some development of new drugs, but the rate will be slower than the current rate. A new problem will be that the elderly may supplement government spending with money they save with Medicare coverage, and thus continue to drive development of new drugs. This will create a new political problem because Medicare cannot cover all of the newer more expensive drugs under its cap, but it will be politically difficult to deny seniors medications for which there are not cheaper substitutes. In the end, tough choices will have to be made about which drugs should be covered.

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I. INTRODUCTION

� What makes health care regulation and its history different from other areas of regulation?

� The book’s title, "Rationality," implicates the positivist assumptions of economic thinking that support policy decisions: what makes health care regulation rational? Are its objectives simple?

� With this framework in mind, I will start with an overview of Kenneth Arrow’s observations in 1963. The prevalence of uncertainty makes the health care market unique. It undermines the logic of ideal competitive behavior, i.e., rationality. Other forces—social institutions, nonmarket relations, ethical or value judgments about distribution—have responded to shape health care.

� What has reduced or mediated the prevalence of uncertainty in health care since then? Where are various players in the health care market "freer to be rational"? Where have nonmarket forces resisted?

A. Private insurance: � The role of managed care organizations and employers as intermediaries in delivery of services.

� Uncertainty as Arrow identified it plays less of a role, liberating us to make the rational choices of market conditions. The resulting conflicts inhere in other market failures of moral hazard.

� Examples: the clashes of interest between MCO’s, doctors, and patients to define "medical necessity;" the pressure that large institutions exert on individuals to modify risks.

B. Social insurance:

� The re-distributive politics of social insurance programs may be viewed in light of an eroding solidarity ethos as we view individuals less vulnerable to the harsh whims of uncertainty.

� In Arrow’s day, uncertainty in the utility of services resulted in a "collectivity-orientation" in physician behavior: non-competitive, ethical, strong fiduciary interests.

� Standardization in the quality and outcomes of medical care allow for more open evaluation of utility, e.g. hospital report cards. Informational asymmetries are less critical, making possible more diffuse decision-making about health care among insurers pushing to confine choices, consumers as activists, and the general public as informed participants in democratic decision-making.

A. Supply-side commitments:

� Insurance has made the demand side of health care markets more quantifiable and subject to concerns about distribution.

� We have greater standards and better assurances of quality.

� We also have medicalized previously natural states.

Being contrarian, I acknowledge the important role of Arationality@ in policy analysis, but am wary of its facile use. My chapter, Care-free assumptions: Who Rationalizes the Rationalizers?, will suggest that it is too easy and tempting to discount and bypass public opinion under the banner of rationality, and that so doing may yield bad, biased health care policies too readily rationalized by proponents of rationality. I address four main areas, questioning 1) the assumptions underlying rational analytical methods; 2) the reliance on rational ends in evaluating policies; 3) the ease with which lay judgments are discounted; and 4) the wisdom of shifting decision-making from the public to elites, even if public dignity is honored.

e Initially, I question rationalistic economic assumptions such as: 1) the Kaldor-Hicks criterion, which favors aggregate wealth maximization without reference to the practicability of addressing distributional concerns; 2) judging policy on willingness-to-pay criteria that limit us to monetizable factors and grant Avoting power@ in proportion to discretionary wealth, rather than utility; and 3) the refusal to compare interpersonal utility. Such assumptions, neither natural nor necessary, rig the analytical results. Cost- benefit analysis has its own costs, as well as benefits, and the difficulty of expressing ethical and political costs in monetary terms is itself telling. From here, I move to more specifically health-related concerns.

e Efficiency and scarcity are useful principles, but won=t always be used in principled ways. Resources are limited, by political will if not by necessity. Criticism of ANewborns Act@-type legislation is apt, but the justifiable suspicions motivating such legislation have been well-earned by profit-maximizing actors. Some conclusions: 1) favoring actuarial fairness over social solidarity can have political (thus economic) consequences beyond economists= expertise; 2) a pro-efficiency bias may impel us towards rationing even when it may be unnecessary or counterproductive; 3) non-economic effects of health policy may be crucial, and in the feminist analysis of chlamydia testing; 4) individual and collective rationality may be antagonistic, as the Prisoner=s Dilemma shows us; 5) markets allocate efficiently, but ill-serve socially responsible goals, e.g., diluting purchasable political influence, which might diminish aggregate wealth.

e We must beware of politically tendentious conclusions in analyzing public thought. Recognizing the failings of lay cognition may be comforting, but experts are subject to similar problems (plus others such as conforming to the presuppositions of one=s field, and to the interests of granting agencies.) Where an expert sees an Aalarmist bias,@ a critic may see a Acomplacent bias@ (especially if the expert is of a class able to evade the impact of such a threat.) Risks not proven to scientific or legal standards are not ergo necessarily absent. Free-market economics rests on distrusting experts= economic judgments compared to those of an unspoken consensus; this might apply to evaluating economically-based policies as well.

e Tocqueville warned that in a democracy the public would loot the Treasury if allowed, but repeatedly it=s elites (providers, insurers) who do so. Many health policy proposals, distrusting the public to make tough, rational allocative decisions, pry such powers from the public=s hands, promising to help deploy scarce resources more cost-effectively. Later providing people information on such decisions (for its Adignitary value@) even where well-motivated, may also reflect a philosophy traceable to Federalist #10, wherein the trappings of representativeness are intended to substitute for its presence. The concern here, as Napoleon once said, is not just that such plans are immoral, but, worse, that they won=t work. Many health policy articles (e.g., favoring implicit rationing) contain the seeds of their own destruction: were the desire to pre-empt public input made known, fear of whitewashing would exacerbate public distrust. While ethical values of honesty, transparency and not cutting costs to serve one=s profits would be tonic, one wonders how well they=d survive the first reception at which a physician browbeaten into stinting on patient care saw MCO directors munching on caviar. Cognitive dissonance might solve this problem all too well: the more suspicion that ethical guidelines aren=t guiding behavior, the more pressure to believe they do. Rational cost-cutting, if based on too carefree an application of rational economic assumptions, can be too-readily rationalized by experts B but not by the millions of Americans left without health care.

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FAULTY BASELINE: Thus far, health care regulation has suffered from a faulty base line due to an unnecessarily expansive definition of health, exaggerated risk perception, and supply state politics.

� Definition of Health: Americans define health as a state of complete physical, mental, and emotional wellness. Because health is no longer defined as the absence of disease or the ability to cope with disease, people bear high expectations for health care. These expectations lead to an increase in demand which in turn engenders high public investment in the supply of more services to each individual. This investment diverts public money from reform efforts that would increase access to basic health care minimums. A redefinition of medical necessity is required to liberate public dollars to ensure greater access to necessary care.

� Risk Assessment: People’s definition of health in turn determines their definition of risk. Because health is now seen as more than the absence of disease, Americans are prone to exaggerate their potential risk. This increase in risk perception in turn increases the demand for health care.

� Supply State Politics: America prioritizes the supply of high technology care over universal access to care. The privileging of the supply of sophisticated care and the definition of health as complete wellness create a political climate adverse to universal access to minimum care.

IDEAL HEALTH CARE SYSTEM: The government’s ultimate goal should be to ensure basic non-means tested coverage to every American. This basic coverage would aim to ensure health defined as absence of disease. This plan would not provide services aimed at complete wellness. Those who wish to purchase more health care will have the option to do so with their own funds. Health care need not provide equal care regardless of income. It must only supply equal care to meet basic medical necessities. This version of universal coverage will provide equal basic care to all Americans and will provide sufficient flexibility for Americans with the means to purchase care in excess of the minimum. This system requires a redefinition of health and medical necessity, a commitment to universal access to basic care, and the eradication of the moral hazards arising from supply-state politics.

For my chapter of your book, tentatively titled ADeath and Taxes: Acknowledging the Inevitable in Health Care Regulation,@ I intend to approach regulation from the perspective that the process of formulating health care policy is shaped by dual influences: the problem of the Aidentified life,@ and the challenge of open resource redistribution in a democratic society. These twin specters haunt health care regulation, complicating already difficult choices. I plan to discuss their respective influences on three aspects of health care policy, concluding that the goals of health care regulation in the 21^st century must be a greater emphasis on universal access, and the acceptance of wealth redistribution as a necessary element of health care regulation.

Wealth redistribution is an essential fact of health care regulation, but it must not come at the price of individual free choice. Ideally, transfers of wealth from rich to poor, from healthy to sick, and from one generation to another must occur in a context that is both informed and voluntary. In order for this to occur, individuals must believe in the necessity and utility of redistribution. This requires an understanding of the benefit to society of reduced overall risk through insurance. Further, it requires a recognition of the value in helping the injured, the sick, and the poor - a recognition that altruism and social solidarity are positive externalities of redistribution.

FOUNDATIONS OF THE REGULATORY STATE

L6110 (PROF. SAGE)

FINAL EXAMINATION, FALL 2000

In addition to the usual Columbia Law School rules and regulations, the following requirements apply to this examination:

This exam contains four pages, including this instruction page. Please make sure that you have all the pages.

Please include your examination number somewhere on each page of your answer. Do not put your real name on your answer.

You have forty-eight (48) hours to complete the exam. You should be able to outline your answers in about a day. The second day is primarily for review, rewriting and proofreading.

You may not discuss the course materials, the examination or your answers with anyone during the two days of the examination. Should you have questions, please contact Academic Services and they will reach me if necessary.

There are three questions, each weighted equally in the final grade. Each question must be answered in a typed memorandum of not more than one page. The page limit will be strictly enforced. The format of your answers should be similar to that used in the writing assignments you completed during the term. Type size and margins must be reasonable.

Follow the instructions for each question carefully, concentrating on the role you are asked to assume and the audience for your response. Treat each memorandum as a "real world" assignment (humor is welcome as long as it doesn't interfere with substance).

Full credit is obtainable using concepts discussed in class or contained in the course reading (multiliths and hand-outs). Additional research is discouraged.

Footnotes, endnotes and other formal references are not necessary. Identify the source of information only if it is important to your argument.

Presentation and writing style will be evaluated in addition to content. Frequent typographical or grammatical errors will be penalized.

GOOD LUCK AND ENJOY YOUR HOLIDAY!!

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QUESTION I:

Ever since the failure of comprehensive health care reform in 1993-1994, proponents of universal health coverage have resigned themselves to pursuing that objective through "incremental" strategies such as the State Children’s Health Insurance Program (CHIP), which was passed in 1997. You are an aide to a United States senator who wants to develop a long-term legislative strategy that will bring the nation closer to universal coverage. He has asked you to evaluate a series of three legislative initiatives:

1. Expanding Medicare to serve people between the ages of 55 and 64, to be financed by charging those individuals premiums for both Part A and Part B.

2. Expanding Medicaid to include two-parent families otherwise meeting AFDC eligibility tests.

3. Expanding CHIP to include parents of eligible children.

In keeping with "incrementalism," he intends to introduce these separately, but hopes they will all be enacted within a few years. In a one-page memorandum, advise the senator regarding his proposal, focusing on the compatibility of the three proposals with one another, their potential interactions, and their likelihood of achieving his ultimate goal.

 

QUESTION II:

"Campaign finance reform" is a popular but elusive regulatory cause. Most proposals for reform follow one of three models:

• Limits on (1) the amount of money that can be spent by candidates for public office, and/or (2) the amount of money that can be contributed to candidates by individuals or corporations;
• Government subsidies for candidates (either partial or complete public funding);
• Disclosure by candidates of sources and amounts of campaign contributions.

You are in the running for selection as one of two law professors to be keynote speakers at a conference on campaign finance reform sponsored by a prominent Washington "think-tank." If you are chosen, your task will be to discuss these strategies for campaign finance reform as general regulatory problems; the other speaker has been asked to discuss constitutional constraints on the three approaches. Assume you would speak for approximately an hour. Draft a one-page summary of your proposed remarks to submit to the conference organizers.

 

QUESTION III:

In the last half decade, several longstanding, supposedly well-understood and well-accepted connections between preventive health care and risk of disease have been disproven by scientific research studies conducted over several years with large numbers of participants. For example, it turns out that a high-fiber diet does not reduce the risk of colon cancer, oral estrogen replacement following menopause does not protect women from developing heart disease, and a low-fat diet does not reduce the risk of breast cancer.

You are an expert in health care regulation who has been hired as a special assistant to the next Surgeon General of the United States. The physician serving as Surgeon General typically has devoted a substantial amount of his or her public statements to extolling the virtues of preventive care. Before embarking on a similar course, the new Surgeon General wants to understand the broad implications of the sort of findings described in the preceding paragraph for government regulation of the health care system. Do your best to educate her in a one-page briefing memorandum.

FINAL EXAMINATION, SPRING 2001

In addition to the usual Duke Law School rules and regulations, the following requirements apply to this examination:

This exam contains four pages, including this instruction page. Please make sure that you have all the pages.

Please include your student identification number somewhere on each page of your answer. Do not use your real name (humorous names are OK).

You have forty-eight (48) hours to complete the exam. You should be able to outline your answers in about a day. The second day is primarily for review, rewriting and proofreading.

You may not discuss the course materials, the examination or your answers with anyone during the two days of the examination. Should you have questions, please contact the Registrar’s Office; they will reach me if necessary.

There are three questions, each weighted equally in the final grade. Each question must be answered in a typed memorandum of not more than one page. The page limit will be strictly enforced. The format of your answers should be similar to that used in the writing assignments you completed during the term. Type size and margins must be reasonable.

Follow the instructions for each question carefully, concentrating on the role you are asked to assume and the audience for your response. Treat each memorandum as a "real world" assignment (humor is welcome as long as it doesn't interfere with substance).

Full credit is obtainable using concepts discussed in class or contained in the course reading (course packet and supplemental hand-outs). Additional research is discouraged.

Footnotes, endnotes and other formal references are not necessary. Identify the source of information only if it is important to your argument.

Presentation and writing style will be evaluated in addition to content. Frequent typographical or grammatical errors will be penalized.

GOOD LUCK AND ENJOY YOUR SUMMER!!

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QUESTION I:

Medicare "fraud and abuse" is a serious problem. Although it is difficult to measure non-compliance with Medicare’s complex array of payment-related rules, the federal government estimates that it loses approximately $10 billion annually when physicians, hospitals, home health agencies, and other suppliers file claims that exaggerate the nature and/or number of services provided to Medicare beneficiaries.

In recent years, the Office of Inspector General (OIG) of the Department of Health and Human Services has adopted two new strategies designed to improve the motivation and ability of Medicare providers to self-police their billing activities. First, the government negotiates settlements with providers being prosecuted for fraud that require the alleged perpetrator to enter into a "corporate integrity agreement" in addition to repaying money. This strategy has been successfully applied to large for-profit clinical laboratory and hospital companies that "upcode" claims to higher payment categories, as well as to major academic medical centers that bill for faculty supervision of residents but fail to document faculty members’ physical presence as required by Medicare rules. Second, the government offers incentives for providers who are not yet targets of anti-fraud enforcement activities to disclose improper billing practices voluntarily and to institute internal "compliance programs." The government hopes that these strategies eventually will reduce the occurrence of fraud and the government’s enforcement burden not only for large corporate providers, but for physicians in solo or small-group practice.

Current compliance programs and corporate integrity agreements commit providers to activities such as

• Internal monitoring and auditing;
• Implementation of standards for proper billing;
• Designation of a compliance officer or "contact";
• Education and training programs for employees;
• Response to detected offenses and development of corrective action plans;
• Improved lines of internal communication; and
• Enforcement of disciplinary standards against employees who fail to comply with well-publicized guidelines and policies.

You are an advisor to the Assistant Secretary for Planning and Evaluation (ASPE) of the U.S. Department of Health and Human Services. Your boss is interested in using the OIG’s corporate integrity and compliance approach as the foundation for a more general policy of governmentally supervised self-regulation for Medicare providers, one that might even be extended to encompass patient care (clinical) as well as billing (administrative) activities. In a one-page memorandum to the Assistant Secretary, analyze the potential benefits and risks of this type of self-regulatory approach.

 

QUESTION II: 

In the United States, the general rule in civil litigation is that each party pays the fees of his or her own counsel. Assume that the legislature of a large state is considering a proposal to change this system to a "loser pays" regime, in which the prevailing party in civil suits in state court would automatically be awarded attorney’s fees as part of the judgment in its favor. Lawyers would be permitted to work on a contingency fee basis, but the victorious party would still be entitled to reimbursement of an attorney’s fee by the losing party. In order to ensure that funds were available to losers with which to pay winners’ attorneys, some form of "litigation insurance" therefore would be necessary.

You are a senior strategist for an insurance company that hopes to become a major underwriter of litigation insurance. In a one-page memorandum to the Board of Directors, outline the issues you believe most important to the company’s decision to enter this line of business, specifying areas in which government regulation might be necessary.

 

QUESTION III:

 NBC’s hit dramatic series The West Wing manages to be simultaneously entertaining, educational, and inspirational without seeming forced or preachy. Using a cast of quirky but essentially good characters, each episode of the show illustrates an important point of Presidential authority while interweaving subplots that showcase both the idealism of public service and the absurdity of politics.

You are a young lawyer who is also an aspiring television writer. You have developed a concept for a spin-off show called DHHS. You intend for the new show to leverage the public’s interest in health care regulation following a decade that began with the failure of national health reform and ended with a vicious backlash against private managed care. In a one-page memorandum, introduce potential producers to your concept and outline three episodes that would air during the show’s first season. Although, like The West Wing, your scripts should be as realistic and accurate as possible, you may incorporate any health care regulatory issues you like, whether or not they are under the technical jurisdiction of the U.S. Department of Health and Human Services. (If you use issues that were not specifically discussed in class, you should present them in a way that builds on class concepts).