Making money from Medicare is simpler than it may seem, according to an article by California Watch, an arm of the Center for Investigative Reporting.
Hospitals receive money based on the ailments they treat. The more severe the disease, the better reward the hospital receives. This reward system creates the incentive to wrongly diagnose symptoms, a practice known as “upcoding,” which is illegal.
California Watch writes,
“Payments are based on a patient’s primary diagnosis. … Take, for example, a patient with pneumonia. A hospital could be paid $7,000 for treating the routine ailment. But if the rare condition encephalopathy — which causes the brain to swell, among other things — is added to the diagnosis, it can result in $7,000 in additional payments to the hospital per patient.”
So, it is in the hospitals’ best interest to diagnose as many sick patients as possible. Hospitals that treat patients with complications qualify for extra bonuses.
Prime Health Service, the largest for-profit hospital of California, has used the practice of “claiming rare and unusual ailments” as a method of turning around failing and struggling hospitals, the report found. Former employees have even testified to being pressured to help optimize hospital reimbursement.
Cases involving Medicare fraud range from the tens to hundreds of millions. In 2006, a settlement with Tenet Healthcare Corp. resulted in a $46 million, and in 2000, “Columbia/HCA agreed to a $403 million settlement for upcoding fraud,” the investigative story found.
Medicare wastes between $50-100 billion each year, which is 10-20 percent of the entire $516 billion budget in 2010. Because Medicare pays for all medical expenses and asks for no co-payment, both patients and doctors have every reason to rack up costs and care.
The Department of Justice has attempted to get Medicare costs under control by going after Medicare fraud and have pursued hundreds of cases since 2009.
Still, the issue of wrong incentives with Medicare is not addressed in the president’s health care overhaul bill.
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