How Medicare Became a Regulation Monstrosity

In a previous post I described the Medicare program as a progressively worsening regulation monstrosity. It did not start out that way. I had a ringside seat for the whole show from 1965 to the present so I can describe what happened. It's important at this point in changing U.S. politics that the public understand this situation.

In the beginning the Medicare program paid doctors their usual and customary fee. Hospitals for their part were paid on a cost plus basis. For the medical providers that was a windfall. My older colleagues described how their incomes surged after Medicare since patient visits increased dramatically and also elderly patients who they previously treated gratis were now able to pay. Hospitals had similar gains and so started new building programs and increased their services. What happened next a 10 year old could have predicted. It was what would happen in any company that told its employees to set their own wages and paid its suppliers on a cost plus basis.

As doctor's fees rapidly increased a new rule provided that customary fees had to be in place for the preceding 2 years. That provision almost cried out for fee increases since doctors were being asked to predict what they wanted their fees to be 2 years hence. Hospitals carried out their mandate by providing nothing but the most and the best and so hospital costs also rapidly increased. So the bureaucrats in Washington inevitably turned to price control.

In 1983 PPS (Prospective Payment System) was started for hospitals. Instead of the cost plus payment system, hospitals have since then been paid a set fee for the patient's diagnosis. So if you have a heart attack the hospital gets the heart attack fee for taking care of you, no matter what it spends. If you ever wondered why hospitals were so anxious to get you discharged now you know. I'm not a hospital expert but I can tell you that government regulations have made things pretty messy. Regulators mandate sirloin steak but Medicare has cut down to hamburger prices. Doctors are constantly pestered to discharge patients. Legions of billers and coders scan the records to come up with adjustments in the diagnosis codes so as to increase the reimbursement. Would any of you be surprised to know that through all this the cost for hospital care dramatically increased, as did the ratio of hospital administrators to actual care providers.

Doctor price control started in 1992 at which point Medicare set the fee instead of the doctor. It was recognized that not all doctor visits are the same. A simple blood pressure check takes less time and trouble than treating someone with serious illness. So Medicare paid 3 different fees for a doctor visit depending on the level of service, and the doctor picked the level. Bring in the 10 year old again to tell you what happened in that arrangement.

So in 1995 Medicare no longer took the doctor's word on what the level of service was and issued guidelines, increasing the number of levels of service to 5 and specifying the number of things that had to be done to justify each level. But the requirements for documentation turned out to be a little lax so in 1997 Medicare revised things and gave doctors a good dose of guideline medicine. To select the level of payment for a patient visit doctors must now enumerate and record multiple aspects of the patient history, exam and something called "decision making". The system is ridiculously complex and nonsensical. As an example significant changes in payment are determined by whether or not your doctor records things about your family, how many different aspects of each body part he examines or such things as whether you have 3 problems he can list instead of 2. In other words doctor visit payment is now less a matter of time and attention paid to you and more a matter of proper compliance with the guidelines and record keeping.

In 2009 as part of the federal government stimulus package electronic record keeping was set as a "critical national goal" and various financial stimuli and penalties were put in place for doctors to adopt computerized records. Regulators specified how the computer programs were to be used. Normally computers are used to decrease cost and improve efficiency but this regulatory effort has produced the exact opposite result, namely increased cost and decreased efficiency. However, one thing computers have done for doctors is to facilitate compliance with the payment guidelines so that guideline documentation and not medical communication is what medical records have largely become.

Although CMS now is exerting exquisite control over the price of each doctor visit (as well as all other services it pays for), there is no control over the number of services. This is the present bureaucratic diagnosis of the reason that Medicare costs continue to rise faster than any other aspect of healthcare. January 2017 will see the start of a new effort to pay doctors and hospitals for quality of services instead of quantity. Time and space will not permit description of the details of this new even more complex program. It will suffice simply to point out that in this new concept quality will be determined by even more documentation and reporting to the bureaucracy. It can be predicted with absolute confidence that things are going to get worse.

If lawmakers and bureaucrats with their regulations can't seem to solve the problems of Medicare, what can? The answer is in plain sight and that will be the subject for another time.