Ripping Off Medicare
If this were a novel, it would require too much suspension of disbelief. From Kaiser Health News:
Here’s how the complaint alleges the arrangement worked: Since Medicare Advantage pays HMOs monthly per-patient fees, the HMOs had a financial incentive to avoid chronically ill patients, who need lots of treatments. So the HMOs referred many of their chronically ill patients for hospice care at Vitas [a hospice], which accepted them even though their conditions weren’t considered terminal.
Although expensive for the HMOs, these patients made money for Vitas, the complaint alleges. That’s because Medicare reimburses a hospice with a flat fee for each day a patient is enrolled. Long-stay hospice patients tend to be more profitable since the big costs in hospice care come when patients first enter the program and need to be evaluated and at the end, when they are dying and require more care, according to the Medicare Payment Advisory Commission, a congressional agency that has faulted Medicare’s payment formula.
On top of that, the lawsuit claims that when the health of Vitas patients required expensive hospital services, the company kicked them out of the hospice program “in order to shift the high costs of hospital procedures and prescription medications” away from the hospice and onto Medicare’s traditional fee-for-service program.
What is incredible is that at the end of an excellent analysis, the MedPac report meekly recommended a one percent increase in reimbursement rates, and nothing else.
It is becoming increasingly clear, I think, that a centrally directed risk-adjustment mechanism, like used for Medicare Advantage, is inadequate. We need a market-based risk-adustment system, which is effectively the consequence of reforming Medicare to look like Professor John Cochrane’s “health-status” insurance.
Whenever there is an incentive to game the system, people will find ways to do so. In a free market, consumers are on alert to avoid such vendors. But when there is a third-party payer, this type of activity can go on for years with little oversight.
I like John Graham’s comment.