The Medicare ATM

I’ve written before about my mother’s back pain. Despite many different attempts by a pain specialist, she’s experienced no relief. Despite more daily meds, her quality of life has taken a turn for the worse. Last month she made a pilgrimage to a respected neurosurgeon at Loyola University Medical Center in Chicago. Pointing to her MRI, he sadly told her that her problem was very serious and that major spinal fusion surgery might help—but that the procedure is ill advised for an 85 year old patient.

Depressed about the pain and the prospect of being confined to a wheelchair, she’s willing to try anything. A presentation at her retirement community offered bioelectric therapy—“in the comfort of your own home at no cost to you—we will bill Medicare and your insurance. Any copayments are our responsibility.” She signed up and was scheduled for an appointment within a week. The good doctor and his friendly team rolled up to her townhouse, set up a table in her living room and proceeded to inject her back with—well, she’s not sure, he’s the doc—and ran an electric device over her spine. They scheduled her for twice-weekly treatments. A few days later the same group sent another doctor with a portable ultrasound and conducted a complete physical exam (he declared her healthy).

Leave aside the risk of unproven procedures performed by individuals who may or may not be trained medical professionals (I’m working on it, ok?), the point of this column is that the group only needed my mother’s identity to begin billing Medicare for twice-weekly procedures. And now they’ve billed for a complete checkup. She signed only one form.

There were—and continue to be—many unsupported claims made by both sides of the health care debate. The argument that Medicare is efficient is the claim that I find particularly naïve. Medicare is efficient only in the sense that its system for paying claims is cheaper than the claims payment processes of private insurers. There is a reason for this, however, and it isn’t pretty. As in my mother’s case, Medicare’s payment system is a “look, Ma, no hands!” system. Many payments are entirely automated—they aren’t even reviewed by a billing clerk, let alone a medical professional.

Let’s take my mother’s case at face value and assume that the group is billing Medicare for exactly the procedures it performs and at exactly the same frequency. The “crime” here is taking advantage of someone’s vulnerability to offer treatments that are almost certain to be ineffective. My mother acknowledges that they could have offered her weekly treatments and billed for twice weekly. Or perhaps they are administering twice-weekly treatments and billing for three per week. Or they may be performing one procedure and billing for another that has a higher reimbursement.

But stealing from Medicare is even easier than my mother’s experience suggests. This is probably a small time scam (although profitable, I’m sure). Malcolm Sparrow at Harvard’s Kennedy School of Government has written extensively on this problem. In 2009 he testified before the Senate
Judiciary Committee on fraud in health care payment systems:

“[C]riminals, who are intent on stealing as much as they can and as fast as possible, and who are prepared to fabricate diagnoses, treatments, even entire medical episodes, have a relatively easy time breaking through all the industry’s defenses. The criminals’ advantage is that they are willing to lie. And provided they learn to submit their bills correctly, they remain free to lie. The rule for criminals is simple: if you want to steal from Medicare, or Medicaid, or any other health care insurance program, learn to bill your lies correctly. Then, for the most part, your claims will be paid in full and on time, without a hiccup, by a computer, and with no human involvement at all.”

What’s to be done? The private health insurance industry invests substantial sums in review processes and creates incentives for physician “gatekeepers” to monitor what is legitimate and appropriate for individual patients. The “medical home” model reflects the approach. But this is costly, as the administrative cost differential between Medicare and private insurance reflects. Sparrow recommends that much more money be set aside to police fraud:

“By taking the fraud and abuse problem seriously this administration might be able to save 10% or even 20% from Medicare and Medicaid budgets. But to do that, one would have to spend 1% or maybe 2% (as opposed to the prevailing 0.1%) in order to check that the other 98% or 99% of the funds were well spent.”

Sparrow adds, “But please realize what a massive departure that would be from the status quo. This would mean increasing the budgets for control operations by a factor of 10 or 20. Not by 10% or 20%, but by a factor of 10 or 20.”

We are in the process of a significant expansion of eligibility for public health systems. Drug coverage was added to Medicare in 2006. Last year’s health care legislation broadened eligibility for Medicaid. Let’s also consider new structures to manage the cost and the care. As in my mother’s case, there are medical, not just financial, reasons to do so.

Kent Gardner, Ph.D. President & Chief Economist
Published in the Rochester (NY) Business Journal September 17, 2010