How Doctors Game Medicare's Billing System


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Today's Wall Street Journal offers a revealing look at the dilemmas posed by government-run health insurance and centrally managed medical price setting. The story, headlined "Taxpayers face big Medicare tab for unusual doctor billings," builds on a giant trove of recently released 2012 Medicare payment data to examine the more than 2,300 medical providers who got a $500,000-plus Medicare payout from performing many repetitions of a single procedure or service. Basically, they billed for the same thing, over and over and over again, in a way that stood out.

Now, why do you think would they do that? 

The story opens with a bit on Ronald S. Weaver, a Los Angeles doctor whose practice billed Medicare for $2.3 million in 2012—98 percent of which was from a single cardiac procedure. As the Journal story makes clear, Weaver's reliance on the procedure is not typical. The red flags are pretty easy to spot.

The procedure is rarely used by the nation's heart doctors. Patients are strapped to a bed with three large cuffs that inflate and deflate rhythmically to increase blood flow through the arteries—a last resort to treat severe chest pain in people who can't have surgery.

The government data show that out of the thousands of cardiology providers who treated Medicare patients in 2012, just 239 billed for the procedure, and they used it on fewer than 5% of their patients on average. The 141 cardiologists at the Cleveland Clinic, renowned for heart care, performed it on just six patients last year. Dr. Weaver's clinic administered it to 99.5% of his Medicare patients—615 in all—billing the federal health-insurance program for the elderly and disabled 16,619 times, according to the data.

In an interview, Dr. Weaver said he learned about the procedure by "reading lots of articles, studies and clinical trials" and decided to build his practice around it. There is no consensus in the cardiology community whether the treatment provides significant benefits. Dr. Weaver, who likens it to "exercise while lying on your back," says it improves his patients' health.

Weaver isn't the only doctor with large, unusual bills covered in the story. Another one billed Medicare for $1 million for 1,757 instances of a procedures that "involves threading a scope up the male urethra to burn potentially cancerous lesions inside the bladder." On average, urologists in the Medicare billing database performed that procedure just 38 times in 2012. Another doctor mentioned in the article billed Medicare for $2.41 million for a rare radiation treatment, far more than the other two doctors who billed for the procedure.

What could be going on here? Perhaps these providers found an easy way to exploit Medicare's easily exploitable billing system? Well, not according to the doctors. As the Journal story notes, "the doctors featured in this article say financial incentives play no role in their treatment patterns." Indeed, some apparently argued that their treatments actually save money by reducing hospitalizations.

If so, the article presents no evidence of systematic savings generated from these procedures. Meanwhile, there's plenty of evidence going back for years that medical providers of all stripes rearrange their practices so as to make those most of Medicare's complex, centrally managed billing and pricing systems. More expensive procedures are performed more often than similar procedures that pay less. Upcoding, in which providers choose a higher-value billing code to describe a procedure, is rampant in Medicare billing. Big hospitals game state-level medical payment schemes designed to equalize pricing discrepancies.

Payment incentives matter a lot, and it's almost impossible to strip complex billing systems of bad incentives. We recently uncovered an extreme version of this effect in the Veterans Affairs administration, which paid bonuses for lower wait times. So staffers cooked the books to make wait times seem artificially low.

Some of this legally dubious, but a lot of it is just how the system works. When medical bureaucrats design payment systems, medical providers end up figuring out how to maximize their returns from that system, and not always in ways that provide obvious medical benefits: Weaver's chest pain procedure is, as the Journal notes, of uncertain medical value.

These sorts of stories frequently result in calls for more policing of abuse within the system. But I think they raise more fundamental questions about the system itself. Should Medicare be paying for procedures of unclear medical benefit? Should Medicare be paying for a single doctor to perform those procedures over and over again? And if so, how much should Medicare be paying? How should the system's overseers determine exactly what the right price is?

It's what Arnold Kling has called "the socialist calculation problem," and it's not really possible to resolve.

Inevitably, medical providers end up reshaping their practices, sometimes in ways that are obvious and often in ways that are more subtle, to match the incentives of the payment system.

There is nothing inherently wrong with building a medical practice around a single procedure, nor is there an inherent problem with patients requesting or receiving a procedure for which there is no clear medical consensus. The problems arise when the public is paying for these procedures, and when, as seems probable, they are being performed primarily to maximize financial gains from a government-administered system. The system creates opportunities for exploitation. We should not be surprised when some providers choose to exploit it.

NEXT: Why Europe's Anti-Uber Protests Backfired: Jim Epstein in The Daily Beast

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  1. I would love to hear the debate between the two lovebirds over Medicare fraud.

    Pete: Doctors game Medicare!

    Megan: Medicare Can Afford a Bit of Fraud

    1. Her point is technically correct.

      The amount of fraud/shrinkage/loss inherent in a big system that would cost too-much to try and prevent is probably in the low single digits. Current fraud/waste is about 10% of total Medicare spending (50bn out of ~500bn annual spending). It should be 5% (or below).

      What i don’t like about her point is that no one out there is really demanding a perfect ‘elimination’ of all waste. She belittles waste claims by simply saying, ‘when considered in the context of other systems, its maybe *a little excessive*, but not as much as you’d think’

      1. She belittles waste claims by simply saying, ‘when considered in the context of other systems, its maybe *a little excessive*, but not as much as you’d think’

        I think she grossly underestimates the actual cost of Medicare fraud. 10% is a very low estimate, IMO. There have been reports putting it anywhere between $75 billion to upwards of $250 billion per year. I don’t buy the high end but I think it’s above 10% easy.

        1. That’s not her estimate = that the (more or less) ‘Official’ government-provided statistic


          Of course, their own accounting for what constitutes waste will naturally be generous to themselves; however, regardless of how you slice it, its still too much, and its still growing in proportion to overall spending trends.

          I’ve been a number-monkey, and I know that you can find ways to ‘define’ the number to be whatever you want. What usually helps are ratios, and a combination of top down/bottom up data squeezing to determine what is the ‘fair range’ of known waste. (e.g. audit individual hospitals/clinics to determine fraud/waste at Point of Service vs. compare to gross totals of % of identified false billings/unnecessary procedures* etc)

          I’d also guess the ‘real #’ to be in the mid-teens, at least. Regardless – data already shows waste 2X higher than anything ‘acceptable’. Rather than quibble over the #s, the goal should be to do an 80/20 exercise to identify the ‘fewest things’ that together cause the ‘greatest waste’, and go after that first and learn from what works with that.

          Of course, that would assume there was an incentive to do so.

          1. I think the fact that you are talking about over $100 BILLION in wasted tax money per year should be enough to bring out the pitchforks from either side of the aisle, regardless of what percentage this represents.

            It baffles me how this isn’t a bigger story.

  2. “involves threading a scope up the male urethra to burn potentially cancerous lesions inside the bladder.”

    That sounds uncomfortable.

    1. “That sounds uncomfortable.”

      Beats the snot out of a laparotomy and partial (or radical) cystectomy.

      Most of such “potentially cancerous lesions” are addressed with cystoscopically guided transurethral surgical resection, and the urologists performing such procedures had goddam well better be getting histopathological specimens to confirm that what they’re fulgurating were, indeed, dysplastic tissues.

      If the pudknocker had been performing such treatments for lesions that were at most metaplastic (and not genuinely “potentially cancerous”), then that’s not only fraudulent but malpractitionate.

      Won’t be the first time such things have happened. It’s why us primary care grunts are supposed to watch the specialists and make sure they’re not working rackets.

  3. I’ve heard that a lot of this type fraud is billing for services not performed at all. When my mother was hospitalized, there was always a steady parade of doctors coming by her room, asking “how are you today?”, glancing at her chart and billing hundreds of dollars for “consulting.” If there isn’t already, there should be a bounty paid to patients who scan their bills and report medical scamming.

  4. “Everything will work better when we destroy all incentives except punishment”
    – Progressivism

  5. Ooh! Wait right here. Let me go get my “surprised look.”

  6. Government creates the game and requires you play. Coerced participants cannot be blamed for being better than govt at playing it.

  7. The odds that these Doctors were trying to cheat as opposed to game the system are tiny.

    There are far more reliable ways of outright cheating the system than what throwing up an obvious red flag like continually billing for a rare procedure

    1. Why be subtle when being obvious is so simple, so riskfree and pays so well? These fraudsters have found a specific procedure that is simple, requires a minimal (not necessarily zero) capital investment, is rarely done elsewhere so there is no comparative billing data (but which also means the rest of medicine considers it near worthless), and, most important, does no harm even if it does no good so it doesn’t invite snooping from review boards or medical examiners.

      Medicare should constantly be looking for evidence of this sort of fraud, but they don’t care — it’s your money, not theirs.

      On the other hand, if s reward system was set up to trap this sort of behavior, Medicare would start refusing payment for rare but essential treatment. Government runs lose-lose systems.

  8. Don’t forget, either:

    According to the government, every billing error or even difference of opinion is “fraud”.

    Actual, stealing-type fraud is a pretty small percentage of the big government-reported fraud number.

  9. The best way to deal with this will never happen – forcing the patients to pay a direct portion of the costs – outlawing Medigap coverage.

    If the patient is paying 25% of the $5000 procedure to massage their blood vessels, they’re much more likely to ask “is this really necessary?”

  10. Isn’t the price supposed to be an indicator of value?

    Why are they paying so much for that crap?

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