Billions Spent to Make Medicare More Efficient Make Medicare More Expensive

Buried within the American Reinvestment and Recovery Act — the 2009 stimulus bill — was a substantial amount of funding intended to encourage health care providers to adopt new health information technology, including electronic health records for patients. The idea was to get doctors to use computers help patients and increase the efficiency of their medical practice, and it lined up what current Medicare director Marilyn Tavenner described in 2010 as "unprecedented resources" in service of this goal — about $27 billion over a decade.

"Once patients experience the benefits of this technology, they will demand nothing less from their providers," Tavenner wrote with a coauthor in the New England Journal of Medicine. "Hundreds of thousands of physicians have already seen these benefits in their clinical practice."

As of yet, the clinical benefits are unclear. But health providers are certainly getting financial benefits from their new electronic records systems. Not only are they being subsidized to adopt the new technology, the new systems are helping them bill Medicare for even more than before. The New York Times reports:

When the federal government began providing billions of dollars in incentives to push hospitals and physicians to use electronic medical and billing records, the goal was not only to improve efficiency and patient safety, but also to reduce health care costs.

But, in reality, the move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.

Hospitals received $1 billion more in Medicare reimbursements in 2010 than they did five years earlier, at least in part by changing the billing codes they assign to patients in emergency rooms, according to a New York Times analysis of Medicare data from the American Hospital Directory. Regulators say physicians have changed the way they bill for office visits similarly, increasing their payments by billions of dollars as well.

The result of the new electronic records systems, which not only organize patient records but also manage the medical billing process, has not been an increase in medical efficiency so much as an increase in billing efficiency. They can charge Medicare for more services. And they can charge Medicare for services that offer greater reimbursements.

This should not come as a surprise. It is exactly how the medical establishment has responded to government-directed efforts to reform the health system through technocratic payment systems in the past. As I noted in my feature on the history of Medicare's payment reforms in the January issue, doctors and health administrators end up tailoring their practices to the payment system:

Medicare’s twin payment schemes are inevitably beset by what George Mason University economist Arnold Kling calls “the socialist calculation problem.” The bureaucrats in charge of setting prices have to come up with a rational basis for the prices they set. They have to be justified, somehow, which is where the complex rate-setting formulas come into play. But without price signals, the result is almost always an arbitrary formula based on a limited, imperfect set of factors. When all is said and done, says Kling, “it’s just a made-up formula. It has to be.” 

The other problem is that any payment system inevitably ends up being manipulated by savvy payees. “You price on the basis of one thing, but then people optimize their behavior to that thing,” says Kling. In a sense this is the primary job of health care administrators: to understand payment systems and squeeze every possible dollar out of them. 

In the wake of the two payment reforms, hospitals began to manipulate the system through “upcoding”—systematically shifting patients into higher-paying DRGs. Research by economists at Dartmouth University suggests that during the early 1990s, hospital administrators figured out ways to substantially increase the number of Medicare cases they billed to higher-paying DRGs. Payment games continue today. In October the Senate Finance Committee released a report accusing several large home health care companies of abusing Medicare’s payment rules by pushing employees to perform extra therapy visits, thereby qualifying for Medicare bonus payments, even when those visits weren’t strictly necessary. But for many health care providers, that’s the business. Hospital administrators “are people whose job it is to game the system,” Kling says. “They know every little detail of the rules.”

The Department of Health and Human Services told The New York Times that these records can "save money" and that the program “has strong protections in place to prevent fraud and abuse of this technology that we’re improving all the time.” It's hard to find this comforting, however, given how many of these sorts of improvements have only made things worse.

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    You've never watched Tosh.O I take it.

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  • Zeb||

    What the fuck are you dorks talking about?

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  • OldMexican||

    [...]the move to electronic health records may be contributing to billions of dollars in higher costs for Medicare, private insurers and patients by making it easier for hospitals and physicians to bill more for their services, whether or not they provide additional care.


    "Baby needs a new furcoat - sooo, that's billing code 026. There! Enter and... Go! Yay!"

    That's what happens when buying a service becomes something totally akin as having a sugar daddy that cares not about your credit card bill.

  • A Serious Man||

    That's what happens when buying a service becomes something totally akin as having a sugar daddy that cares not about your credit card bill.

    Well it helps when your source of credit is unlimited access to other people's money.

  • NoVAHockey||

    I take it you've seen the HHS and DOJ letter to the hospitals about this? and the hospital's response. it's basically the gov saying "your upcoding" and the hospitals responded by pointed out such billing doesn't indicate fraud and of the claims that are denied, about 75% are overturned and paid on appeal. because there was no fraud.

    HHS wanted a more accurate billing system. and they got one.

  • Auric Demonocles||

    But more accurate always means cheaper!

  • R C Dean||

    The funny part is that the companies that make and sell this stuff justify the millions (or tens of millions) that it costs by pointing out that you will capture charges and bill more accurately, so you will actually get your investment back.

    When a system has horrific consequences for overbilling (and Medicare does, trust me), the incentive is to resolve uncertainties on the downside. EMRs reduce the uncertainty, and so more accurate billing will generally be higher billing.

    But of course, this is all a completely uninteded consequence.

  • Mainer2||

    You can't call forseeable consequences unint.......oi vey...look whom I'm telling.

  • Tman||

    I have been trying to find that story about Medicare waste and fraud investigations where the government spent like $100 million to recover approximately $30 million worth of fraudulent charges.

    I think it perfectly encapsulates the problem.

  • Tman||

    And I found it.

    http://www.mcknights.com/medic.....le/249105/

    Lawmakers blasted a Medicaid anti-fraud program that has cost taxpayers more than five times as much as it recovered.

    Since 2008, more than $102 million was spent on the Medicaid audit effort, but only $20 million in overpayments were recovered, federal investigators revealed during a Senate hearing.

    I am shocked -SHOCKED!- to hear that gambling is going on in this establishment.

  • Rich||

    That is beautiful, Tman. Thank you.

  • NoVAHockey||

    i'm convinced that the only people who get caught defrauding Medicare are the exceptionally greedy and stupid. fly under the radar? make your claims realistic? I don't see how they catch that. Maybe RC has an opinion.

  • R C Dean||

    My professional opinion is "Don't defraud Medicare."

    The thing to remember is that the government counts any bill it doesn't agree with as "fraud." The billing system is insanely complex, constantly changing, and is chock full of ambiguities and judgment calls.

    Most of what the government calls "fraud" is either (a) a perfectly legitimate bill that will be confirmed if examined, or (b) a good faith application of the rules as understood by the biller.

  • Rich||

    Oh, and another thing:

    Medicare director Marilyn Tavenner described in 2010 as "unprecedented resources"

    Does anyone else find it, um, *annoying* when taxpayer dollars (or QE magic dollars) are referred to as "resources"?

  • Tman||

    (raises hand)

  • ||

    Almost as much, but slightly less, than when I hear myself referred to as a "resource".

  • Mainer2||

    So this phenomenon is so well understood that it even has a name, “the socialist calculation problem.” “it’s just a made-up formula. It has to be.”

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    We need a name for that phenomenon, call it "the curse of smart people" ?

  • ||

    You mean the outcomes didn't match the intentions? I'll have to get my shocked face out of deep storage.

  • BakedPenguin||

    Is this you?

  • ||

    A close approximation

  • Red Rocks Rockin||

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  • Killazontherun||

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    Can I say that even though I’m not exactly a fan of Mitt Romney’s, this is just bad behavior? You’re supposed to wait until it’s actually over before you do this kind of thing. Anyway, I like how Ryan is declaring independence: by using PowerPoint!

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  • Jesus H. Christ||

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    I thought you were more of a laying on hands kind of guy.

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    Now *that* is slick.

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    Damn straight. They can win PR points by claiming to combat fraud and at the same time delay payments long enough to claim savings. 'Look, The Affordable Care Act is working!'. Aren't our public servants just the grandiest?

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    I've always figured it was just the DTs.

  • James C. Bennett||

    Long, long ago, when I was but a baby IT guy, I worked in the Home Health side of the healthcare industry (which was almost, but not quite, as notoriously crooked as DME). At the time, we were forced to submit billing to MediCal (CA's Medicaid program) on pre-printed forms run through a dot matrix printer. If the printing touched the edge of one of the boxes on the form, they would deny the claim and we would not get paid. Oh, and they would sit on the claim and not report that it had been denied until after the period in which we were allowed to contest their decision had passed. So, I found a company that made a cartridge for our HP laser printer that allowed it to print out the necessary form, filled out, directly from our management software. I called our MediCal rep and told them what I was doing. They were very excited - new tech, and all that - and approved the use of the device. Then they got the first batch of bills, and realized that our bullshit denial rate dropped from about half of claims to zero. So they denied all of them and said we had to use the pre-printed forms. Still ticks me off...

    Oh, and, independently, our Controller calculated that it would actually be cheaper to just provide services to MediCal patients for free and write it off as charity than to pay the billing specialists necessary to squeeze money out of that program...

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