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Bankrupt Healthcare
A Victory Against Incentives for Over-Treatment

File this one under the U.S. health care system’s many incentives for over-treating patients: a lab in Virginia has come under investigation for paying above-average fees to doctors who sent it blood samples for testing. Health Diagnostic Laboratory Inc. is a newly wealthy company that tests blood to determine whether a patient might be prone to heart disease, among other conditions. It can receive up to $1000 from Medicare per every bundle of tests it performs on one blood sample, and these payments have helped HDL grow into a bigger company. Meanwhile, medicare reimburses doctors three dollars per blood sample they draw, but HDL pays them an extra $17 for “processing and handling” the sample.

The WSJ reports that the Department of Health and Human Services, concerned that such payments offer doctors an incentive to order more blood tests than are necessary, is now investigating HDL and other labs—all of whom have therefore stopped these extra payments. The investigation centers on whether the labs’ payments fall under the “safe harbor” exception to anti-kickback legislation:

Under the exception, payments must not offer a financial incentive for doctors to send more business the vendor’s way. They must not exceed a “fair market value” for the service and must be a fixed amount set beforehand. The government is examining whether the labs’ payments were excessive and encouraged doctors to send more samples because they were paid for each one.

HDL and several other labs under investigation say that their payments were fair-market-value compensation for handling blood, that they had been a widespread industry practice and that the fraud alert represents new government guidance.

Other charges have been brought against HDL’s lab procedures, but it’s this incentive issue that particularly stands out. Whether legal or not, whether standard industry practice or not, it seems fairly clear that these payments could incentivize doctors to over-treat. The chief executive of HDL, Tonya Mallory is on record rejecting the idea that the payments “might inappropriately affect some physicians’ decisions.” However, when the fraud investigation began, she agreed that stopping the payments “is the right decision for us and for you.”

This is just one of numerous cases of such incentives for over-treatment tucked away in the various nooks and crannies of the U.S. health care system. Individually they may not seem like much; together they weigh down the system with a significant amount of waste and fraud. If nothing else, the debate over health care seems to have brought greater attention to many of these cases—and, in this one, to have led to an actual victory against over-treatment. We should be grateful for that.

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