I don’t have a good reason to write more about health care fraud. It’s just that I’ve read a few papers and think they’re worth mentioning. Roger Feldman (with whom I collaborate) and Arti Rai responded in print to David Hyman’s paper, about which I blogged earlier in the week:
- An Economic Explanation for Fraud and Abuse in Public Medical Care Programs, by Roger Feldman
- Health Care Fraud and Abuse: A Tale of Behavior Induced by Payment Structure, by Arti Rai (ungated version available)
Feldman and Rai both emphasize the incentives for fraud and fraud control. If we only get the incentives right, …
But I’m not going to pursue that line here, not directly anyway. I don’t intend to minimize it, I just want to highlight something else Rai raised. Read their papers for the rest.
Hyman [notes] that “eliminating ‘waste, fraud, and abuse’ in governmental programs is a subject on which there is universal agreement. Politicians denounce them, newspapers editorialize against them, and no interest group argues in their favor.” But he does not take the next step of saying that the shibboleth of fraud and abuse was introduced in the political arena largely because more direct efforts at cost control, such as enrolling all seniors in some form of managed care, were seen as politically untenable. In contrast with its view of managed care, the public views fraud enforcement efforts in an extremely positive light. In fact, public opinion surveys suggest that overwhelming majorities of people think that the Medicare cost problem could be solved by vigorous policing of fraud. Once an aggressive fraud control regime was in place, it was only natural that fraud regulators would attempt to expand their jurisdiction beyond cost control, to the important question of health care quality. Such jurisdiction expansion was particularly easy given the current regulatory vacuum on quality issues, at least at the federal level. Thus we see the various ill-conceived attempts, described so well by Hyman, to regulate quality through the lens of fraud.
By contrast, the private sector has taken a somewhat different approach to cost control. Managed care organizations often have fairly elaborate utilization review mechanisms to deny coverage for care either prospectively, concurrently, or retroactively. Although this ongoing utilization review may appear to be a more expensive form of deterrence than imposing high sanctions ex post in a small, arbitrarily selected, number of cases, it may ultimately prove less expensive. After all, the arbitrary sanctions-based approach has very costly collateral consequences in terms of fostering resentment and distrust in the regulated population.
Unfortunately, the survey evidence marshalled by Hyman indicates that, even in the private sector, so long as cost containment is implemented through administrative rules, physicians may attempt to game the system so as to evade cost control measures. Thus it should come as no surprise that private managed care organizations have had their own difficulties in controlling health care cost escalation. In order to control such escalation, insurance companies must make cost-benefit trade-offs with respect to technology. Just as various principles of our contract and tort law make it difficult for insurers to make such trade-offs, so too does gaming.
So if fraud control efforts by the government are an unfortunate response to Medicare’s fee-for-service structure, and private-sector approaches that rely on administrative rules also have limitations, is there any method that will be effective?
(Rai cites many sources in support of her claims. I did not read them and have omitted footnotes in this passage. Go to her paper for the details.)
I find Rai’s perspective here very refreshing. Rather than viewing waste, fraud, and abuse purely through a crime-and-punishment lens, she is suggesting that it is part of the broader battle with costs and quality. In other words, just another tool in the same spirit — though with very different incentives and costs — as managed care. Whether you agree with that or not, it is at least a fresh take (to me) and moves the fraud issue into a more familiar, if not more comfortable, battleground. It also makes it plain why the same act can be viewed as an enhancement of patient care by a practitioner and white collar crime by a regulator. Yes, it’s a matter of (not so clear cut) law. But it is more than that. It’s a matter of costs and quality too. What’s out of bounds for one due to a focus on costs of a certain type is within bounds for another by nature of an emphasis on quality.
Of course, I’m leaving aside the financial interests of the provider. Those must play a role. But I think it’s overly broad to say they’re the only role. Some of what is labeled fraud, or could be, is likely motivated in the conscious mind of the provider as provision of necessary, quality, care. It’s at least justified that way, and not always implausibly (but, sometimes, yes, implausibly!).
Whatever you call it, the tension remains: In a world of finite resources, how much do we, should we, must we pay for what we get? How do we establish incentives to get what we need — or a “reasonable” amount of it — without paying for what others might want us to have? Is fraud control the best way to balance the competing incentives and cost-quality tension? I don’t have answers. In their papers, Rai, Feldman, and Hyman did a good job of raising the issues.
