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The Joys of Top-Down Systems
Hospice Providers Bilk Medicare

A number of hospices have found an interesting new way to juice their business: bringing in patients who aren’t actually dying. The Washington Post reports:

Medicare pays a hospice about $150 a day per patient for routine care, regardless of whether the company sends a nurse or any other worker out on that day. That means healthier patients, who generally need less help and live longer, yield more profits.

The trend toward longer stays on hospice care may be costing Medicare billions of dollars a year.

In 2011, nearly 60 percent of Medicare’s hospice expenditure of $13.8 billion went toward patients who stay on hospice care longer than six months, MedPAC, the Medicare watchdog group created by Congress, has reported.

As a result, some for-profit hospices now encourage employees to sign up as many patients as possible, regardless of whether or not they are terminally ill. This has escalated to the point where hospice workers have begun to lodge complaints against their employers, many of which are now facing a wave of lawsuits. The government has also been pressured to revise the rules governing Medicare’s hospice payment system, particularly since these payments account for nearly 90 percent of these companies’ revenues. The hospice industry is lobbying hard against these proposed changes.

Ah, the wonders of top-down controls.

Medicare costs aren’t just ballooning because of fraud. They are ballooning because in a top down, bureaucratic system, there are huge incentives to game the rules. Inevitably the bureaucrats policing the system move more slowly than the lynx-eyed lawyers and accountants gaming it. Worse, because the lawmakers that writes these laws are indebted to the corporate interests who fund their campaigns, the rules are often written in ways that make it easier for the system to be gamed.

The federal government was doing a poor job of organizing and managing the medical responsibilities it already had under programs like Medicare, Medicaid and the VA. Now under Obamacare it is taking on vast and complex new ones.

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  • free_agent

    It’s not clear how to fix this without having each patient pay directly for all care they receive. Even with wholly private insurance, a hospice organization can bilk the insurer; the incentives to game the system don’t end just because a private insurer is paying the bills.

    • Andrew Allison

      The problem we face is the significant proportion of the population who can’t afford to pay for their own healthcare. It’s my opinion that the only viable alternative to throwing them to the wolves is a healthcare safety net for all, with private insurance for those willing and able to pay for more.
      What the Supreme Court did not address, and should, is whether the grossly inflated premiums for those with AGI over four times the poverty level represent a tax in the same way that the Individual Responsibility mandate does. When you get right down to it, the health insurance market now looks a lot like

      government welfare, i.e. 20% of the insured paying 80% of the premiums.

  • Richard T

    A truly top-down system would go like this:
    1. The gov’t looks at population size, incidence of various diseases, etc., and plans how many hospice places will be needed.
    2. Patients are put in a waiting pool, and if the hospices are full, the gov’t starts to pay for your hospice care when people sicker than you have died and/or people healthier than you have been removed from the system.
    3. Watch the political pressure build for healthy patients to be removed.

    What we have here in the US is a middle-out system where the decisions are made neither by the patients (bottom) nor the gov’t (top), but by the hospice owners. We seem to have little control of any kind.

  • Andrew Allison

    Prof. Mead’s visceral distaste for “socialized medicine” is clouding his usually well-reasoned judgement. First, let me stipulate that ACA is an utterly misbegotten piece of legislation which Congress appears powerless to enforce (just how many arbitrary Executive Branch band-aids flouting the law Congress passed will it take for it to reassert its authority?).
    What TAI and 98% of the other commentary fail to grasp is that health insurance is NOT healthcare. ACA is an insurance scam, er plan, to have those who can afford insurance subsidize those who cannot while siphoning off close to half the premia to private insurance companies, and a goodly portion of the rest to providers of contraceptives, etc. Furthermore, while fraud is an inescapable companion to insurance, the fact is that, with all its faults, Medicare is doing a pretty good job of managing costs (it can, and should, do better by providing penalties sufficient to discourage such fraud). We should compare Medicare fraud with that perpetrated on the private insurance market by unnecessary procedures. In sum, the private market has proven to be at least as incompetent as the government in providing healthcare.
    The solution is catastrophic insurance for all, and help for those in need.

    • ljgude

      Your prescription is getting to be recognizably similar to how Australia and many other OECD countries organize healthcare. A cost controlled public system that treats all comers and an optional insurance based system that gives people who choose to pay for insurance beyond the er bronze level with choice of doctor and access to private hospitals and minimal waiting times. The ACA tries to plug holes in coverage by major intervention in the Insurance market as you point out. That is a high risk strategy because coercing private profit making entities to pursue social goals is a pretty basic category mistake. They were built to make profits, not babies or other social goods. At best it is like herding cats as Obama and all the other intelligent people are slowly discovering.

      Here is what I think will happen. Everyone will be pretty unhappy with the whole thing come 2016 and Hillary will be coaxed out of retirement as the only person in America capable of fixing the mess and she will do something similar to what she proposed in ’92 – extend Medicare down in age and let the insurance companies go back to what they are good at – selling insurance to people who can afford it. It may even be doable if things get bad enough to scare the daylights out of the people in our healthcare system who are raking an extra 6% of GDP if they suddenly see that they could be raking nothing at all. (Almost all countries get the same kind of health outcomes as the US for 10% or less of GDP; the US spends 16% or more. The major exception is Switzerland that needs 11% GDP for its insurance based system.

      • Jim__L

        We can call that the “Hilarious” solution. 🙂 How bad is it, when the disaster that was HillaryCare looks good in comparison?

        No, we need to REPEAL and to concentrate on tightening our regulatory structure to reduce the cost of coverage — at which point coverage will expand to include those who want it and can’t afford it.

        Cut the cost of coverage to the point that charities can cover the rest — that’s the real solution. We’ll get there even faster if Leftists would give as much to charity as Conservatives do.

        • ljgude

          Yes, I meant it ironically but in rereading my Hilarious solution I believe it could come to pass. I find considerable evidence anecdotally of poor US regulation. CPAP mask cost through Medicare $511 total. Copay $50. Cost from CPAP supply company doing business on the Net $125. Amazon on a lucky day $50-$75. In a NewYorker article in the period leading up to the passage of the ACA a doctor compared annual Medicare costs in El Paso and McArthur Texas and found that the former were roughly from memory about $700 per patient and the later was about $1400 per patient. Doctors in both places were unaware that such a difference existed, but obviously Medicare knew but did not attempt regulation. In aggregate US healthcare expenditure per patient is twice as much as the OECD average. US health outcomes are slightly below average – pretty amazing when there are significant numbers of people in the US who can’t afford treatment for treatable conditions. One clear indicator that the ACA has done nothing to address this cost problem is that that it limits healthcare spending to 17.5% of GDP by 2017. That’s not a sustainable, but them’s some big hogs what got their snouts in the trough and it’s going to take some doing to pry them out and they are going to squeal some. Check out the Time magazine article Bitter Pill Steven Brill to get an appreciation of just how fat them hogs are.

          • Jim__L

            The impression I get from America’s cost numbers is that we are not good customers and doctors are not disciplined retailers. We over-consume the latest / greatest tech heedless of the cost/benefit, and doctors push through more and more whether we need it or not.

            Market discipline, competition, price transparency, and reduction in defensive medicine (tort reform) would greatly contribute to solving both problems.

            REPEAL is the only way to clear a path for the reform we need.

          • ljgude

            I think repeal could happen, but it may just go on and on but as long as noting essential changes the financial inefficiency of this system will be a huge burden on the economy. 1/6th or more. I don’t pretend to know the solution but I think the things you mention are major parts of the solution. Looking at the Australia system I see how market discipline is at work in our mixed public private arrangements. Everyone pays theMedicare levy to the Australian Tax Office and gets care at no out of pocket cost other then the levy. Straight socialized medicine. But there is a private hospital system and there is private health insurance. It takes the pressure off the public system because you get more and sometimes better and almost always quicker service from your doctor of choice. But the Doctors often work in both systems so you may get the same service in the public system. The market discipline operates because if the insurance companies raise their rates too much people drop their insurance and rely on the public system. If waiting lists grow too long in the public system more people buy insurance. They also buy insurance because the public system controls costs ruthlessly. They will tell you you are not a good candidate for such and such a procedure which means they would prefer to spend the money on someone who has a greater chance of a successful procedure. People know that they must be strong advocates for their own health to get the most out of the public system and that they can get more service by buying insurance. The conservative party here did repeal universal healthcare in the 70s and got thrown out of office for I think 13 years.(I’m not saying the same would happen in the US – the ACA is unpopular) When they finally got into government they changed the tax laws to give you a break if you bought private insurance and if you had plenty of money but still relied solely on the public system introduced a Medicare surcharge. Justice Roberts would probably call it a fine. Right now in the US you have a seriously disrupted insurance system and some kind of reform of your public system – Medicare and Medicaid. It isn’t clear to me yet if any of the reforms to the US public system will be at all effective. I think that is where the government should have started – the public system and applied things like price transparency and competition, tort reform etc. as you suggest. I see little evidence that either Republicans or Democrats are about to embark on real reform yet.

      • Richard T

        “The ACA tries to plug holes in coverage by major intervention in the Insurance market as you point out. That is a high risk strategy because coercing private profit making entities to pursue social goals is a pretty basic category mistake.”

        Remember acid rain? Profit-making entities achieved that social goal at unexpectedly low cost when the right incentives were applied. But the electricity industry wasn’t making even a fraction of the profit the medical industry makes now, so it didn’t have as much incentive to push back.

  • lukelea

    Hospice is a great service so whatever you do don’t muck it up.

  • Jim__L

    The ultimate problem here is one of information — how do you know when someone is actually dying? A set of symptoms that in one person would mean death within days, another person can live with for years. Working out the difference is an expensive (and uncertain) effort in and of itself.

    Add litigation into the mix, and you’ve set up a nightmare of a system.

  • Jim__L

    One truly scary response to the rules-gaming is, “Let’s constantly change the rules, to keep the system-gamers from finding loopholes in the system!”

    I am completely serious — there are actually Lefties, ones with actual pulpits and the trappings of academic “authority”, who think like this. One whom I know personally is a private-college economics professor (and a big Krugman fan) who specializes in Game Theory. His background is — get this — in collectible card games. He firmly believes that our laws need “expansion sets” and rules tweaks every year or two to prevent “exploits” on the part of “hardcore players”.

    He’s a nice guy, but the world would be a better place if he were still spending most of his time playing World of Warcraft instead of trying to influence public policy.

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