Billions of Dollars Paid for Medicare Services Not Rendered

Αssociated Press

(AP Photo/J. Scott Applewhite, File)

General public dissatisfaction with the health care system was demonstrated in the 2018 by-election. Consumer costs continue to rise much faster than the average inflation rate while performance remains unimpressive. The United States ranks last among developed nations in health care outcomes and in the past two years, our average life-span has decreased.

An article in the Wall Street Journal (January 5/6) shed light on a health care problem not widely acknowledged. Organizations that service the drug benefits aspect of Medicare have been bilking the system of a billion dollars annually for more than ten years.  The major culprits include CVS Health Corp., UnitedHealth Group, Humana Inc., and Anthem Inc.

The providers are not committing a crime but are using an indefensible payment system devised by the Obama administration in 2006 with the intent of lowering Medicare costs.  Each month, all health insurers involved in the drug program inform Medicare of their estimated costs which include a solid profit and administrative expenses. These must be estimates as the provider cannot be certain just how many customers it will serve or what customers will order.

Medicare pays each healthcare provider its estimated monthly costs in advance. At year’s end, providers furnish Medicare with an accounting of actual costs. If costs were greater than projected, Medicare pays more to close that gap. The reverse, however, does not happen. If the estimated costs have been lower than expected, the provider only has to repay Medicare costs greater than 5% of the original estimates. From 2006-2015, this netted healthcare providers an average of $1 billion annually!

Imagine that at the onset of each month, you paid a dentist for services and products to be rendered, including profits and office costs. If by the end of the year, the dentist’s projection proved too high, you would expect a refund or a credit for the new year. Not so with Medicare.

The reason for Medicare’s “gift” to healthcare providers lies in how Medicare codes are written. There is always the possibility of unforeseen factors being in play, but more often, the “giveaway” provisions are the work of lobbyists laboring on behalf of well-paying cooperate clients. Complex legislation, often unread and is rushed through Congress is likely be filled with such legal loopholes.

Overestimates by healthcare providers are not related to adjusting to a new system. In the first year of the new rules, overestimates totaled more than $10 billion. In the next two years that dropped below $5 billion. In the next 6 of 7 years, however, that average overestimate was $10 billion with 2012 topping out at nearly 15 billion. That’s an example of learning by doing.

As the Wall Street Journal noted, the Medicare Payment Advisory Committee, a congressional agency, wrote back in 2015 that these inaccurate high estimates, “show consistent patterns rather than the randomness one might expect from projection errors in the actuarial assumptions behind bids.” In simpler language, researchers at Memorial Sloan Kettering Cancer Center state that the probability of constant overestimates so high had a one in a million chance of being unintended.

The profits created by these accounting strategies result in a de facto tax on all Americans. The $1 billion could have been returned to Medicare. If that began this tax year, by 1934/35, there would be $16 billion more in the Medicare account that would supposedly be going into the red. Another alternative is to use the $1 billion to send $250 checks per annum to each of Medicare’s 44 million recipients.

The accounting fiasco at Medicare is an example of corporate favoritism that the new wave of mainly Democratic House members were elected to address. Their perspectives differ markedly from most long-serving House Democrats and Republicans who have demonstrated they will not or cannot mend such problems.  Democratic progressives hope their electoral victories were wake-up calls to traditional colleagues who need to show they can govern more wisely than the preceding majority if they wish to regain the Senate and presidency.

The Democrats in the House have sufficient votes to rewrite the payment formula I have been discussing. Other simple cost reductions would be to authorize Medicare to bargain for drug prices and to use cyber technology to end Medicare checks being sent to dead clients. Such reforms were not possible under Republican control as large segments of that party seek to privatize Medicare or drastically limit its services rather than improve them.

Senate Majority Leader Mitch McConnell, no fan of Medicare, could refuse to bring House bills to a vote. If his party accepts that position, everyone will understand who is padding their campaign coffers. President Trump could weigh in.  He has been willing to shut down the government and deprive 800,000 Americans of paychecks to gain the right to spend $5 billion on a wall that he promised would be paid for by Mexico. Is he willing to exert any energy to save Medicare $1billion annually?

The pattern of one party seeking to curb Medicare through any means feasible while its opposition does little but protest verbally is not a productive scenario. Heartless and conscious profiteering continues to deprive the public of lower-cost health care. Ethical issues have been disregarded in favor of private profiteers enjoying “creative” accounting.