Thursday, July 02, 2009

Medicare cost control

Via commenter "John Dewey" at the Marginal Revolution blog I found this Wall Street Journal editorial about how Medicare is able to control its overhead. Essentially they are more susceptible than private insurers to getting ripped off:
A draft report by the inspector general of Health and Human Services -- circulating on Capitol Hill and leaked this week -- determines that Medicare may have paid $2.8 billion in improper or fake claims for medical equipment in 2006. That's an error rate of 31.5%, in a single corner of this colossal entitlement. "This report doesn't surprise me," fumed Democrat Pete Stark.

...We're speechless. Mr. Stark and his ilk consistently claim that Medicare is a model for government-run "universal" health care because it spends less on overhead than the private sector. True, Medicare's administrative costs are just 3% of total spending, while the private sector hits 11% to 14%.

But insurance companies spend money to screen their claims for fraud. Medicare automatically pays more than 95% of the bills it receives. This lack of scrutiny reduces overhead, but it makes the program highly vulnerable to abuse. In June, a high-school dropout pleaded guilty to conning Medicare out of $105 million by submitting over 140,000 bogus claims before auditors noticed. It was the biggest health-care fraud in American history.
Makes sense. (previous post on Medicare admin costs here)

Dewey also points to this economic paper that compares the U.S. and Canadian health care systems that is worth a read.

Update: Much more here in Senate testimony from a Harvard professor of public management:
The units of measure for losses due to health care fraud and abuse in this country are hundreds of billions of dollars per year. We just don't know the first digit. It might be as low as one hundred billion. More likely two or three. Possibly four or five.

...Loss rates due to fraud and abuse could be 10%, or 20% or even 30% in some segments. We do not have reliable figures of the loss rates, because the overpayment rate studies the government has relied on in the past have been sadly lacking in rigor, and have therefore produced comfortingly low and quite misleading estimates.

By taking the fraud and abuse problem seriously this administration might be able to save 10% or even 20% from Medicare and Medicaid budgets. But to do that, one would have to spend 1% or maybe 2% (as opposed to the prevailing 0.1%) in order to check that the other 98% or 99% of the funds were well spent.

But please realize what a massive departure that would be from the status quo. This would mean increasing the budgets for control operations by a factor of 10 or 20. Not by 10% or 20%, but by a factor of 10 or 20. Such a move would be politically inconceivable unless the actual magnitude of the losses were properly measured, and the cold hard facts about loss rates put on the table.

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