Medicare’s Chronic Wasting Disease: Going Viral
December 15, 2009
by: Leslie Paige

Government WasteWatch, Winter 2009

As the final 2009 edition of Government WasteWatch was being put to bed, news came that a rump group of 10 Senate Democrats (five liberals ands five moderates) had come to some sort of behind-closed-doors breakthrough agreement on how to move forward with Senate Majority Leader Harry Reid’s (D-Nev.) $848 billion healthcare bill.  As usual, no pertinent details were offered by Leader Reid, who kept the new proposals so close to the vest that even Senate allies had not seen them.  Instead, there was only a vague wave of the imperial hand and an assurance that his group had moved the bill substantially down the road.  As the clock ticked, official Washington was again waiting for the Congressional Budget Office to score the proposals.   
 
Details were scanty, but most news reports indicated that the agreement reached had eliminated the government-run healthcare option, one of the most contentious aspects of the deliberations.  Instead, Democrats had struck off in what they claimed was a new direction; they now envisioned an expansion of Medicare benefits to those between the ages of 55 to 64, which could mean as many as 3 million new people added to the Medicare rolls at a time when the program has $38 trillion of unfunded liabilities and is already on a glide path to insolvency.  Sen. Jay Rockefeller (D-W.Va.) told National Public Radio on December 9, 2009, that he liked the Medicare buy-in idea “a whole lot.  I’ve been dreaming about that since 2001.”  Almost as an afterthought, Sen. Rockefeller noted that first “comes the matter of you’ve got to spend money.”  When an elected official starts talking about his dreams, the result is certain to be a nightmare for taxpayers.
 
Each incarnation of healthcare reform so far has relied, to one degree or another, upon cutting Medicare by $400 to $500 billion over 10 years to offset the exorbitant costs of the plans.  Dr. David Gratzer (among many others), a healthcare analyst for The Manhattan Institute, correctly calls these pledges a “D.C. fairy tale,” noting in his December 3, 2009, New York Daily News op-ed that “Congress reversed planned cuts in 1999.  And 2005.  And 2004.  And 2006.  In fact, since 1997, when members of both parties agreed to automatic cuts if spending rose faster than population and economic growth, the program has been cut just once, in 2002.”
 
Then there are the guarantees to cut wasteful Medicare spending, a perennial political crowd-pleaser, but another unfulfilled promise.  Squeezing waste out of Medicare is a laudable goal, and an aggressive waste eradication campaign could yield savings (conservatively) of $40 to $50 billion annually, or 10 percent, a much higher percentage of fraud than exists in private healthcare systems.  Unfortunately, administrations and Congresses going back decades have tried, and failed miserably, to eliminate waste, fraud and mismanagement.  In fact, improper Medicare payments reached a record $47 billion over the last year.
 
Medicare has been, from its inception, a politicized program and, as such, is driven primarily by political power and influence, not increased efficiency, better access, higher quality, or better health outcomes.  The program’s basic structure, its incentives, and its governance all encourage wasteful spending and fraud.  It is like “The Terminator,” built to withstand even the most modest attempts to cut fat and achieve efficiencies. 
 
Medicare already has numerous agencies of the federal government looking over its shoulder, including the Centers for Medicare and Medicaid Services (CMS), the Department of Health and Human Services (HHS), the Office of Inspector General (OIG), the Government Accountability Office (GAO), the Federal Bureau of Investigation (FBI), Department of Justice, the Office of Management and Budget, and House and Senate oversight committees, not to mention the state law enforcement agencies, all busily quantifying the mountains of waste and fraud.  What is woefully lacking is the political will to act upon those realities.
 
The durable medical equipment (DME) industry is one of the most infamous sources of waste.  DME providers sell wheelchairs, diabetic test kits, oxygen concentrators and other items to patients for Medicare reimbursement.  A July 2008 GAO report stated that over a one-year period in 2006 and 2007, Medicare overpaid for DME claims by $1 billion.
 
In 2006, federal investigators for the OIG busted a ring of criminals operating in South Florida that was fraudulently billing Medicare for phony HIV-infusions.  Of the 500 scam businesses uncovered in the dragnet and subsequently thrown off the Medicare provider rolls, half appealed for reinstatement in the program and 90 percent of those appeals were successful because, according to the OIG, “there is no clear criteria regarding the types of evidence necessary to reinstate billing privileges.”  A July 2008 GAO report identified serious weaknesses in Medicare’s provider screening process after the FBI set up bogus DME businesses and demonstrated that they were routinely able to obtain clearance from CMS.
 
According to former HHS policy analyst Walton Francis in his new book Putting Medicare Consumers In Charge:  Lessons for the FEHBP, this is “the kind of problem that is inherent in the ‘any willing provider,’ ‘we pay all bills properly submitted,’ and ‘due process’ principles written into Medicare law, regulations, and practices….it is hard to believe that any private payer would have taken twenty days, let alone twenty years, to stop paying blatant fraud artists for nonexistent medical equipment sales from nonexistent businesses.”
 
Even the most casual observation of the government-run Medicare program and its history will expose the “cut the waste and introduce competition” rhetoric as sheer nonsense and the DME industry, once again, provides the lesson.
 
In 2003, as part of the Medicare Modernization Act, partly as a reaction to the outdated and increasingly byzantine pricing rules for DME and partly as a bulwark against the ongoing pillaging of the program by scam providers, CMS took a swing at introducing some new competitive bidding rules for DME providers.  The new rules, which were projected to drive the cost of DME down by 26 percent, were scheduled to go into effect in July 2008.  After 132 lawmakers complained to the House Ways and Means Committee and demanded that CMS delay the program for at least a year, the rules were suspended.  In exchange for the delay, the DME industry agreed to a temporary 9.5 percent cut in DME fees.  After extensive consultation with DME industry stakeholders, CMS announced on October 22, 2009, that it would relaunch the bidding program under new rules.
 
Medicare costs about $500 billion annually.  It is riddled with what Walton Francis calls “government-administered allocation systems.”  It has become a miasma of complex, conflicting regulations that open it up to thievery on an epic scale.  Finally, congressional meddling in Medicare promulgates wasteful spending, rewards bloat and punishes efficiencies.
 
Medicare features a statutory requirement that physicians’ fees must never go above an overall spending ceiling.  When that occurs, the annual increase in physicians’ fees must be deferred or current fees cut.  Cutting physicians’ fees is not popular, nor is it smart.  It has the detrimental effect of driving physicians out of the Medicare program completely.  Perhaps more importantly for Congress, it has the effect of alienating the politically powerful doctors’ lobby.
 
In every year since 2003, Congress has been faced with this potential cut in physicians’ reimbursement fees and it has flinched, pushing the costs of inaction into the next fiscal year with a promise to enact more draconian cuts to make up for the shortfall.  During the current debate over how to pay for the healthcare reform bills, several of the bills have resorted to budgetary kabuki theater by using the phantom cuts in doctors’ fees (valued at approximately $250 billion over 10 years) to help offset the nearly trillion dollar cost of the bill.

President Obama and supporters of the various healthcare bills have chattered incessantly about how their plans will slice wasteful spending and introduce smart, private-sector-like competition into the healthcare markets to drive down costs.  Regardless of the good government rhetoric and somber promises to introduce a tsunami of competition and vanquish waste and abuse, the same structural rules will hold true for any future government-run health insurance option that Congress enacts.  A massive expansion in Medicare, which is a government-run healthcare plan after all, would be the target for exactly the same sort of structural and political vulnerabilities, only on a much larger scale. 
 
The announcement of Sen. Reid’s so-called breakthrough bypasses all pretense of eradicating waste and is silent on competition.  It simply flings opens the doors of Medicare to at least 3 million more recipients, inviting billions more in Medicare waste, fraud, and abuse.