October 1997 Bulletin

4 issues may impact Academy's future

Four issues are impacting the present and may impact the future of our profession and our Academy. They are all of the highest priority. I'll address them in the following sequence.

  1. The continual squeeze on reimbursements by legislators and bureaucrats who believe they are only reducing surgeons' personal incomes and not the high standards of health care in the U.S. They fail to recognize that to a great extent reimbursements pay for the cost of health care - everything from equipment and supplies to staff salaries. We have been aggressive in trying to put some reality into the effort to develop a Medicare resource-based practice system for practice expenses.
  2. Our right to present new and relevant educational information to our membership is being challenged in the multidistrict pedicle screw litigation.
  3. Representation in negotiations with managed care organizations is something more and more of you believe you need help with.
  4. The need to represent ourselves and try to limit the adverse actions of our legislators and regulators by being politically active requires changing the tax status of the Academy.

Medicare practice expense

Last spring, I requested that all Academy fellows send letters to their U.S. Representatives and Senators urging them to delay the scheduled January 1998 implementation of HCFA's proposed new Medicare payment rates for physician practice expenses. Your response was overwhelming. Between your letters, personal visits and the work of our "Practice Expense Coalition" in Washington, we succeeded in getting Congress to pay attention to this issue. I witnessed firsthand the manner in which the legislators and their staff changed their views on this issue.

In June this year, HCFA published its proposed new payment system in the Federal Register for public comment. Shortly afterwards, and before the Balanced Budget bill was passed, I asked you to join the Academy in expressing to HCFA our opposition to the proposed new payment system and the flawed study on which it was based. You rose to the occasion on very short notice. Your letters informed HCFA about concerns regarding its study and, also clearly articulated how the payment reductions would specifically affect your ability to deliver the quality of care that your Medicare patients deserve and expect.

In August, President Clinton signed the Balanced Budget Act of 1997 which, among other things, delays implementation of HCFA's proposed new payment system until January 1999. It also called for HCFA to develop new practice expense payments using generally-accepted cost-accounting principles in consultation with physician organizations. A more detailed look at the payment changes that we can expect in 1998 is also in this issue of the Bulletin.

I want to thank all of you who mobilized and participated in this effort to make a difference. The defining of the practice expense component of orthopaedic patient care is a vitally important issue. As a profession, we must be involved. It was inspiring to receive copies of the letters that you wrote with personal examples of how unjustified payment decreases would affect your practices. Your response gave the Academy's Board of Directors an infusion to continue to work to influence the process over the years ahead.

It is important to remember that we are in the midst of a revolution in health care financing and delivery which is well beyond what any single physician organization can impact. Our successes will come by building physician and patient coalitions. Currently, different physicians organizations and memberships are pitted against each other in these Medicare payment issues. The "balancing of the budget" is being done on the backs of physicians, hospitals, and medical technology and procedures. "Price controls" have not been a solution in controlling market forces in the past, and I feel will not be an acceptable answer in health care.

This is a summary of the provisions of the Balanced Budget Act on the practice expense issue:

  1. A one-year delay in the implementation date from January 1998 to January 1999.
  2. A four-year transition to a resource-based practice expense.
  3. The Secretary of the Department of Health and Human Services is to conduct a new study of practice expense values, utilizing generally-accepted cost accounting principles.
  4. Provides a $390 million increase in payments for the office visit codes. (This money is derived by placing a cap on the amount of practice expense RVUs at 110 percent of physician work values or at a level required to create the pool of funds at $390 million.)

Pedicle screw update

The role of the American Academy of Orthopaedic Surgeons as the premiere musculoskeletal educational organization in the world is being threatened by unabated litigation. We are entangled in a suit in the U.S. District Court of Eastern Philadelphia, along with the North American Spine Society, Scoliosis Research Society and the American Association of Neurological Surgeons. The accusations are that these professional societies conspired with industry in the marketing and promotion of the use of bone screws in pedicles of the back (pedicle screws), a use not currently cleared by the Food and Drug Administration. The federal judge recently found in favor of the plaintiffs regarding our request to be dismissed from this litigation based on First Amendment and other free speech arguments.

On June 17, the U.S. Circuit Court of Appeals for the Third District agreed to consider the medical societies petitions for an emergency stay of the proceedings and for a Writ of Mandamus. Oral arguments were heard Sept. 23, 1997; we are waiting for a ruling from the court. Some basic issues related to the education of orthopaedic surgeons are being defined:

  1. Free speech vs. speech during continuing medical education meetings
  2. Education vs. promotion by a medical society

We feel strongly that the continuation of the pedicle screw multidistrict litigation is having and will continue to have a substantial chilling effect on our right to participate in the free exchange of ideas on medical and scientific topics. An adverse decision or prolonged litigation of this case will impact medical education, medical research and medical practice. This litigation is taking up considerable time and resources from our Academy staff and volunteer members. We are now heavily engaged in the discovery phase; for example, in a one-week period this summer more than 70 depositions were scheduled around the country.

This litigation questions how we make our medical decisions. We are not robots. We do not make decisions on how to treat our patients based on the presentation of one individual's opinion at a medical meeting. We make our decisions based on our past personal experience, the literature, other scientific presentations, discussions with our peers and by reviewing the opinions of recognized experts in a given area. We must be able to discuss and have different opinions and approaches presented. We need to hear about advances and future treatments to be able to advise our patients.

This threat cannot be minimized nor underestimated. An adverse decision in the court system could, in the worst-case scenario, bring our organization to its knees. This is a complex issue and I am unable to discuss this subject with you as openly as I would like. Every statement at this time is discoverable in a deposition. You all know how frustrating this can be. It interferes with "doctors talking to doctors" without our attorneys present. More updates will follow as developments unfold.


In my last Across the President's Desk column, I discussed receiving many letters from Academy fellows expressing their personal frustration, anger and anxiety related to the impact changes are having on their individual practices. Many letters are asking, "Can the Academy form a union or become one for orthopaedic surgeons?" Several letters express a similar thought, "it is time to draw a line in the sand." These individuals feel a need for more representation in their negotiations with managed care. Many wonder if "collective bargaining" or "striking" are indicated. Will joining a union work for a physician? Possibly, if that physician is an employee. However, the vast majority of our membership are not employees.

Those wondering about having a union represent them should consider a few questions: How does it affect my professional status? Am I willing to withhold orthopaedic care from my patients? How effective, in general, is collective bargaining and striking in the current labor movement?

In discussions I have had with legal counsel and with labor experts, the advantages of the current physician unions over those of an IPA are blurred. Unless the physician is in an employment arrangement, antitrust laws prohibit them from engaging in most of the activities that traditional unions are able to do, such as collective bargaining and striking. Physician unions are currently being used in a similar manner to IPA's and certain physician networks as a tool in contact negotiations. See the story on unions in this issue of the Bulletin.

The current marketplace has a supply and demand situation in which orthopaedic surgeons (Academy members) are competing against each other to be involved in meaningful patient care. While some of us are saying no to certain contracts, there is no shortage of orthopaedic surgeons willing to satisfy these managed care offerings.

I believe the Academy as a national organization, representing all our members can be most effective in representing your patient's and your interests (mutual interests) in the legislative area. The need to remain active in health policy is just one of the reasons that the Board of Directors will consider in December forming a new (sister) 501©(6) organization. We have had success in legislative activities and we have experience, resources and commitment. The Academy can represent your patients and your professional interests without violating the law and jeopardizing our traditional role as the preeminent providers of musculoskeletal education.

New tax status

"Our Strategic Plan determines our tax status; our tax status does not determine our Strategic Plan."

At its meeting in September, the Academy Board of Directors determined that "it is the time, it is necessary and it is fiscally appropriate" for the Academy to consider again making major organizational changes related to its tax status. Outside legal consultants and tax advisors tell us we should not remain status quo. We need to adjust to the changes that have occurred outside of our organization. The Academy will continue to enjoy the benefits and continue to function as an educational 501©(3) organization. However, we need to consider forming a new and separate 501©(6) organization. This would allow us to maintain and provide greater flexibility for our health policy departments and not jeopardize our educational objectives and programs.

The issue of the appropriateness of the Academy's tax status is not new. During the previous three years, the Academy leadership grappled with this issue. The Board of Directors heard and considered a Task Force report regarding the Academy's tax status in December 1994. The Task Force members unanimously recommended that the Academy establish a new 501©(6) organization and at the same time retain its 501©(3) organizational shell. After extended deliberation in February 1995, the Board of Directors, following a split vote, decided to remain a 501©(3) organization. A survey of the membership at that time reflected that they also were split on changing the tax status of the Academy. As a part of the Board's decision, our staff was instructed to be prepared to file the necessary paperwork for immediate conversion if the Academy's lobbying expenditures exceeded permissible government limits. The issue again came to a vote at the Aug. 25, 1996 Board of Director's meeting. This time, the Board was equally divided on a motion to convert the Academy to a 501©(6) organization by April 1997, with a 501©(3) organization to be retained. During these extensive discussions, all participants realized that changing the tax status of the Academy was a complex issue.

Academy members adopted a resolution reaffirming the Board's position at the 1996 Annual Meeting. That resolution, which is binding on the Academy and Board of Directors, was as follows:

Resolved, that the American Academy of Orthopaedic Surgeons shall begin the timely and fiscally appropriate change from its current 501©(3) tax status to become a 501©(6) organization [with an affiliated 501©(3) organization], if or when the Board determines it is strategically appropriate.

The Academy's Board of Directors has determined that now it is strategically appropriate and legally prudent for the Academy to initiate planning to establish a sister 501©(6) organization. The environment in which we are functioning has and is continuing to change. A few of the issues that mandate the Academy to make these organizational changes at this time are the following:

  1. Recent recommendations from outside legal and tax counsel that, in light of the Academy's current legislative activities, the Academy consider forming an additional 501©(6) organization to house the Academy's noneducational activities.
  2. Recent IRS scrutiny and narrowing of the allowable lobbying expenditures of not-for-profit organizations. A recent IRS investigation of and challenge to a not-for-profit organization's allocation of just 2 percent of its budget for lobbying expenses.
  3. The retirement in the spring 1997 of the Academy's tax-exempt bond for its headquarters building in Rosemont, Ill. (Only a 501©(3) organization may purchase and remodel buildings with tax-exempt financing.)

The Board of Directors will consider these organizational changes and develop the necessary bylaws changes at a December 1997 Board Workshop devoted to this issue. These changes potentially may include:

If the Academy Board of Directors approves the proposed restructuring and creation of a new 501©(6), it will take approximately 1 ½ years to implement completely the Academy restructuring. This new organizational restructuring could help to insure that the Academy can maintain and not jeopardize our current emphasis and priority on educational activities. At the same time, it also would allow us to pursue health policy issues affecting our patients and profession while avoiding the new restrictions and potential legal consequences of the Academy's current 501©(3) legal status. Regardless of what the Board of Directors decides, I firmly believe that the fundamental endeavors of the Academy will remain education, quality patient care and the advancement of our profession.

Douglas W. Jackson, MD

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