How Much are Misaligned Incentives in Health Care Costing Tax Payers?

How Much are Misaligned Incentives in Health Care Costing Tax Payers?

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On Christmas Eve, I took care of a patient who had just undergone surgery for an infected artificial shoulder. He was to be discharged on intravenous antibiotics three times a day for six weeks. This is a pretty common treatment. Patients are generally able to give themselves this medication with the help of a home care nurse who visits once a week. The total cost of this is approximately $7000 for nursing visits, antibiotics and supplies ($120 per visit for eight nursing visits plus $143 per day for antibiotics)

The social worker informed him that Medicare would not pay for home care nurse visits or supplies. BUT, Medicare pays for inpatient rehabilitation, which he would be eligible for to receive these antibiotics. Given the choice of paying $7000 for home administration versus $0 for inpatient rehabilitation, naturally he chose inpatient rehabilitation.

The problem is, is that his inpatient stay costs taxpayers approximately $21,000. $350 for room and board plus additional costs for antibiotics and supplies, totaling approximately $500 a day. Furthermore, although he was well enough to be discharged home before Christmas, he needed to stay until he could be placed in rehab. Because of holiday scheduling, most rehabilitation facilities were not accepting admissions. Thus, he had to stay in the hospital an extra four days in the hospital over the weekend and holidays. Given that the average cost of a hospital stay is $2338 in Maryland that added an additional $9352 or so of unnecessary expenses.

In sum, because financial incentives encouraged my patient to spend $0 rather than $7000 out of pocket, Medicare spent an unnecessary added $30,000 on his hospitalization and care.


To make matters worse, my patient didn’t even want to go to rehabilitation. He preferred to administer the antibiotics himself at home and found it hugely inconvenience to have to be an inpatient for six weeks just for antibiotics. He was a small business owner, and these extra days in rehabilitation would hinder his productivity at work. He was upset that he had to stay in the hospital over the holidays for unnecessary reasons. He was upset about this twisted logic, which forced him to choose the less resource efficient option and lamented the financial burden he was unwillingly imposing on taxpayers.

This decision would harm my patient in other ways. Medicare limits beneficiaries to sixty lifetime days of inpatient rehabilitation care, so if he ever needed future inpatient care, he would have fewer days available to him. Staying in a hospital facility can also be harmful medically, as added days in the health care setting place him at increased risk for health care acquired infections.

The United States has been in recession for years and calls for fiscal responsibility ring loudly. Fiscal crises and congressional deadlock have almost become the new normal. Rising health care costs account for 25% of total federal spending and stands at $2.8 trillion a year. This contributes a significant portion of our national debt at a time when we can’t afford wasteful spending.

The Affordable Care Act has attempted to curtail waste through various mechanisms including redirecting care from high cost specialists to lower cost primary care doctors, restructuring reimbursement from fee for service to a value based model. Others have suggested various cost cutting mechanisms such as reducing overtreatment, implement market-based incentives, and reduce overhead.

My patient’s situation illustrates another aspect of potential cost control that has not frequently been discussed. Skewed financial incentives caused by illogical Medical reimbursement schemes create additional unnecessary costs that are not just wasteful, but also harmful and inconvenient to patients. $30,000 is a great deal of money to waste on something that is medically unnecessary and unwanted.

This is but one example where misaligned incentives drive providers and patients to choose the less efficient, more wasteful option. Examples are abound in health care. Patients in New York regularly told me that they called an ambulance because it was cheaper to them (free!) than a $20 cab ride. An ambulance ride in New York City costs $704 per ride not including mileage. Medicare and Medicaid contribute approximately half of the FDNY’s total revenue of $205 million yearly.

I remember referring one of my clinic patients to the social worker because she had recovered from depression and wanted to get a job. The social worker discouraged her from finding employment and instead advised her to volunteer because she would lose her disability benefits if she found gainful employment.

Because uninsured patients do not have outpatient drug coverage, it is not uncommon for uninsured cancer patients to be admitted to the hospital in order to get outpatient chemotherapy infusions. This adds approximately $2338, the average cost of an overnight admission, on top of what would have been an outpatient infusion.

I could go on and on.

Policy changes that systematically reform these misaligned incentives could do much to reduce illogical decisions that cause wasteful healthcare spending. Lobbying and patchwork legislation have led to our current system of fragmented reimbursement schemes where benefits initially meant to help patients, create unintended consequences leading to wasteful spending. Long-term solutions to counteract our increasing federal deficit require bending the cost curve of health care. Taking a careful look at Medicare reimbursements that don’t make sense could potentially save millions of health care dollars and improve quality of care.

Special thanks to Donald List, LCSW-C, for assisting  with obtaining the costs of the therapies and services mentioned in this article.

Elizabeth Dzeng is a General Internal Medicine fellow at Johns Hopkins University. This post originally appeared in The Huffington Post.

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28 Comments on "How Much are Misaligned Incentives in Health Care Costing Tax Payers?"


Guest
Mar 2, 2013

Are we sure that Medicare actually paid the hospital $30,000 in this case?

The Medicare fee schedule may not be quite that stupid. Although there is an entire industry of billing consultants who find ways to manipulate Medicare payments to hospitals.

The solution is to scrap the DRG’s and pay hospitals with global annual payments. Also, make ambulances a subsidized public service for all ages.

Guest
Feb 27, 2013

Now a days health care became a lot expensive but there are organizations such as The Orthohealing Center which is based at LosAngeles and is providing good health care specially in the orthopedic field in a very reasonable rate

Guest
Sharon Wood
Feb 25, 2013

Just a word or two about Home Health Care; if your facts are as stated, then Medicare should have covered the cost of the patient’s nursing visits as long as your patient met the qualifying conditions which include the patient being homebound. The IV meds and supplies are not covered under the Medicare benefit, but if there was a secondary insurance this might have picked up some of that cost. Also, many hospitals and facilities have IV outpatient clinics that are cost effective and can be billed to Medicare. It sounds like the Social Worker met a few obstacles and needed some help coming up with other options. Lack of integrated systems and poor communication are key drivers to the issues you and your patient experienced and add significantly to the ever increasing cost of health care.

Guest
Paul
Feb 25, 2013

Two words: ROOT CAUSE. This example begins with an “infected artifical shoulder”. Please note that such implants are not supposed to become infected. We have no details of this case. Post implant surgical infections have many causes. The most common is “surgical technique”. It is likely that this cascade of avoidable costs BEGAN with a preventable medical error. The second surgery to address the resulting infection – the results of which are the focus of this article- were also preventable costs. In other words, the fiasco is much worse than described herein.

Guest
Feb 24, 2013

Just joining this conversation…and the info is bit shocking, especially for me who always scare for the word ‘tax’, and this time I need to get more unwanted tax information, in a positive way though.

I might get thrill and little bit of anxious, but it’s better knowing rather than get hit without knowing.

I hope the congress could make this more clear in the recent future.

Guest

I may be that your patient didn’t have Part D coverage for prescription drugs since MedPAC’s June 2012 report (Chapter 6, p178) includes the following: “Medicare expenditures on home infusion drugs are concentrated on a small number of products. IV antibiotics covered by Part D accounted for the largest number of users of Medicare-covered home infusion drugs. More than 56,000 beneficiaries used Part D–covered IV antibiotics in the home in 2009, with a gross drug cost of about $70 million and an average gross drug cost per user of about $1,250.” The specific issue of Part B coverage of prescription drugs relates to medicines that the patients can give themselves v. those that require a clinician to deliver the medicine is complicated and is what MedPAC reviewed in this chapter.

Guest
Barry Carol
Feb 24, 2013

Conversely, if a hospital keeps a patient in the hospital on observation status for several days in order to minimize its readmission status and the patient then needs to go to a skilled nursing facility, Medicare won’t pay for the usual 100% of the first 20 days and 80% of the next 80 days because the patient did not have INPATIENT status for at least three consecutive days. Healthcare is a complicated business with not only lots of misaligned incentives but lots of unintended consequences as well.

Guest
Botetourt
Feb 26, 2013

Thank you for pointing out that we are talking about skilled nursing care. “Rehab” is most often used to refer to a distinct-part inpatient rehabilitation unit, usually under the direction of a physiatrist. The 60 % rule makes this form of care largely unavailable to single-joint replacement patients. Also, hospitals must be very careful about very short lengths of stay as the RACs are all over this. Observation status often makes sense, but is grossly misunderstood, and causes confusion because of the Part D rules which apply to outpatient status, like observation.

Guest
Liz D
Feb 25, 2013

Barry Carol, good point – this brings about another level of complexity. See this NY Times piece for a summary of it:

http://newoldage.blogs.nytimes.com/2012/06/22/in-the-hospital-but-not-really-a-patient/

Guest
steve
Feb 24, 2013

This supports the idea of paying a fixed price for care and letting providers decide how they want to spend the money.

Steve

Guest
genius
Feb 24, 2013

There are many geniuses working to set prices of medical care in HHS and CMS. Did you not know this?

Guest
Jenn
Feb 23, 2013

Additionally, as the hospital is reimbursed for a surgical patient admission under a DRG, and the pt is still there for X number of days awaiting placement in a rehab facility, there is another factor at work– diminished throughput. A patient who doesn’t need to be hospitalized is occupying a bed, meaning a patient in need of a bed, another surgery (and another DRG reimbursement) or another sick person in the emergency department is not being bedded. This diminished capacity lowers the working funds of the institution and reduces the ability of said institution to provide care to those who are uninsured or indigent.

Guest
Feb 23, 2013

Actually, MedPac looked into this exact issue recently and could not come up with any tangible recommendations.
http://www.medpac.gov/chapters/Jun12_Ch06.pdf

Guest
Peter1
Feb 23, 2013

At least for the uninsured I have one word – INDIA.

Guest
Feb 23, 2013

Steven Brill is all over it:

http://tinyurl.com/adca2gs

Soup to nuts.

Guest
Aurthur
Feb 27, 2013

Please note Steven Brill’s boss has been paid almost as much as the President of MD Anderson. The year of earnings Steven Brill points out, MD Anderson took in $531 million more than their “costs’. The same year, Steven Brill’s boss oversaw the loss of $4 million (and 34% loss of subscribers and advertising revenue). Only conclusion is CEO of MD Anderson is a bad person and Richard Stengel is a good person. Of course, I doubt Mr. DePinho named obama as the man of the year in any of his publications, and worse yet, he may even support The Constitution of The United States of America. He must be destroyed.

Guest
Feb 27, 2013

No one ever went bankrupt or died as a result of a Time Magazine subscription. Or as a result of the $8 million a year some ballplayer got.

Guest
Aurthur
Feb 28, 2013

How many father’s lives were extended 8 years so “she knew she had to get him to MD Anderson Cancer Center” by a baseball player, Richard Stengel, or Steven Brill? Weird how all these patients are knocking down the doors to get into MD Anderson, even taking $80K from Mom because they chose not to buy medical insurance, even though “the results our (USA) health care system produces are no better and often worse than the outcomes in those countries (most developed countries). And as far as the mortality rate affect of Time Magazine subscription or lack of them, I agree it is difficult to assess how much damage and culpability the sensationalized cover stories will have on future patient outcomes, but let’s hope MD Anderson exercises a bit more professionalism than Time Magazine’s Mr. Stengel or Mr. Brill if either of them end up “having to get there” and have to deal with “the costs they faced in a marketplace they enter through no choice of their own”. Entire piece is a illogical, divisive, politically motivated, “hack” job.

Guest
Whatsen Williams
Feb 23, 2013

The criteria used by CMS and other insurers for coverage are flawed, and there is no one there who will listen. Just bureaucrats and suits.

Look, they are paying incentives to use EHR medical deices that are experimental.