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Medicare Pricing Follies

Medicare Pricing Follies
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indexMedicare prices and policies flow through all of medicine.

In another article in this week’s issue, “What If Grocery Stores Were Run Like Healthcare?,” we discussed the absence of transparent pricing in medicine. Of course there are prices, although it can be very difficult to discover what they are. Many of the prices are set by the Medicare system, which in turn is heavily influenced by a committee of the American Medical Association. This committee is full of specialists and its main job seems to be to keep nurses from doing things they are fully qualified to do and to ensure that specialist physicians are paid better than generalists. Here is how the system works (or does not work):

  • Medicare sets a payment schedule for 7,500 separate tasks, varied by location and other factors. This translates into coverage of about 6 billion medical price transactions at any one time.
  • Hospitals are paid as much as three times more for many procedures than private physicians. For example, Dr. Thomas Lewandowski, a Wisconsin cardiologist, found that he received $150 for an echocardiogram versus $400 if done by a hospital employee; $60 for a stress test versus $180; and $10 for an electrocardiogram versus more than $25. Eventually, he, like many other physicians, gave up and sold his practice to a hospital. When he did, he agreed to follow hospital guidelines for treatment that limited his independence and also agreed to see more patients per day.
  • The Medicare coverage and price schedule is so complex that if you call Medicare for instruction, and ask different personnel, you will get widely varying answers, as documented by a number of studies. But if a physician makes a mistake and bills for something not covered, he or she has committed fraud, punishable by jail. Moreover, one cannot rely on advice from Medicare personnel as a legal defense. It is not surprising that a significant number of doctors, estimated at 15% but much higher in some areas, refuse to treat Medicare patients, and the number is likely to grow rapidly.
  • Medicare does not pay for phone calls, email, or showing patients how to do things for themselves. So these tools, which have revolutionized other service professions, are rarely used.
  • Medicare also refuses to pay for blood tests not connected to a specific illness. The use of blood tests to identify health problems before they emerge has the potential to revolutionize medicine, but Medicare says no.
  • Doctors and patients can also benefit from computer and cell phone applications or “apps” such as those which monitor blood pressure and send the information to the doctor. Will Medicare pay for them? No, unless the “app” has been taken through the FDA approval process at vast cost. Meanwhile, the FDA says it is concerned about the proliferation of medical software for cell phones, and may crack down on anyone selling it without approval. The same applies to electronic sensors.
  • And what about genetic testing? With a few exceptions, Medicare will not pay for that either, even if it has been taken through the FDA. In this way, American healthcare is essentially frozen in time, unable to take advantage of any new technology whose owner has not paid millions, or hundreds of millions, to get government approval, or in some cases, even after such approval.
  • If an elderly patient comes to a doctor with more than one problem, Medicare will not pay the doctor for treating more than one problem at a time. So if the patient has high blood pressure and also diabetes, there must be two appointments. Of course it is not quite that simple. A specialist may be given half pay for treating a second problem at the same time, unlike a family doctor who gets nothing.

Unfortunately Medicare pricing not only governs the Medicare system. It also serves as the foundation for private insurance. The two are more closely connected than people realize. Most of Medicare is run by private insurers who find it more convenient for tie the two systems together as closely as possible.

To make medical pricing work better, we need to bring it out into the light of day, let consumers know what things cost, and give them a way to reward hospitals and doctors who provide better care at a more reasonable cost.

This article was adapted from chapter 13 of ANH-USA Board President Hunter Lewis’s new book Crony Capitalism in America 2008–12.

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