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OPINION: Center series demonstrates dangers of 'captured' regulators

'Cracking the Codes' reveals how Medicare is wasting millions due to special interest influence

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The months-long Center for Public Integrity investigation into the Medicare program has uncovered a textbook example of the expensive consequences of  what’s known as “regulatory capture.” Doctors and hospitals are likely being overpaid billions of dollars, which is hastening the depletion of the Medicare trust fund, because lawmakers and regulators put lobbying and professional groups representing health care providers in charge of writing the rules that determine reimbursement.  

And to make matters worse, to maximize revenue and profits, some doctors and hospitals have figured out how to game the system to their financial advantage by abusing what has been held out as a means to improve care and reduce administrative costs —electronic health records.  

“Regulatory capture” is a term that describes an all-too-common situation at both the federal and state levels in which special interests — in this case groups like the American Medical Association — dominate regulatory bodies that set the rules and make important decisions affecting them. In many regards,  the Centers for  Medicare and Medicaid Services (CMS) has become a “captured agency” as a result of decisions made decades ago — with the full blessing of both the White House and Congress — to pretty much let health care providers determine how — and how much — they will be paid.

A previous investigation by the Center revealed how in the 1990s CMS effectively turned over many of its payment policy decisions to an obscure committee of the AMA, despite the obvious conflict of interest.  In doing so, CMS officials fell for the argument that no one knows better how to set rules that will affect special interests than representatives of those same special interests. I have seen this play out in the same way regarding insurance company regulation. Many state insurance commissioners come straight from the insurance companies they are charged with regulating.  

This week’s series, “Cracking the Codes,” makes clear some of the consequences of this state of affairs. Another sort of  billing scale for doctors, involving so-called  Evaluation and Management codes, was  unveiled two decades ago as part of a secretive deal between Medicare officials and the AMA. The doctors’ group wanted Medicare to reimburse doctors for the “thinking part” of medicine, or their skill in diagnosing and treating illness, as well as the time required. Medicare administrators believed the new system would reduce billing abuses and save taxpayers cash by setting measurable standards that physicians would follow.  

The Center’s review of a decade’s worth of data shows that those coding standards have been subject to widespread abuse and manipulation to make doctors more money. And it is not that lawmakers and regulators have been in the dark about this. Year after year, audit after audit, government oversight officials have found blatant stealing from the treasury and yet CMS has done nothing about it — other than to make excuses.

Many of the abuses appear to involve a practice known as “upcoding,” in which health care providers use codes with higher levels of reimbursement than is appropriate for the care they really provided to patients. The Office of Inspector General of the Department of Health and Human Services recognizes that upcoding is a chronic and costly problem. But it has largely done nothing either, primarily because it is under-resourced to combat fraud and seems to believe that upcoding is not as costly as other abuses, particularly in the area of medical durable equipment.

The government is also not doing anywhere close to an adequate job of monitoring the use of electronic health records (EHRs), even though a big chunk of money from the economic stimulus bill — some $30 billion — is being doled out to help doctors and hospitals pay for the technology to use EHRs. The government, mainly the Office of National Coordinator for Health Information Technology, never imposed any controls over the IT industry as technology companies scrambled to rake in billions of dollars from taxpayers.

As the Center’s series points out, many experts have argued that the lack of any fraud controls in EHR software would likely spawn a new wave of billing fraud and abuse. But those critics have been shouted down by a chorus of health IT doctors and geeks, big tech companies and others who argued, not without some justification, that EHRs are needed to get medicine into the modern age.

The bottom line is that left to their own devices and without adequate oversight, doctors and hospitals can and do charge more for less. Much has been made of the argument that patients are largely to blame for skyrocketing health care costs because of their unhealthy lifestyles and overuse of medical services. The Center’s investigation shows how doctors and hospitals are also to blame by cranking up their billing without increasing care.