You Aren’t as Sick as Government Claims

Give Medicare money directly to patients to solve ‘upcoding.’

By Charles Silver and David Hyman. 

"Every con in the book has been tried in government health programs. One of the most common is “upcoding”—the process of fudging records to make patients seem sicker than they are. The trick is lucrative: The Journal recently reported that insurers took $50 billion from Medicare over three years by adding fake illnesses to patients’ diagnoses.

Criminals and legitimate providers—hospitals, physician groups, drug manufacturers, pharmacy benefit managers and insurers—raid the Treasury in other ways too. Within the past few weeks, it was reported that crooked brokers and insurers are helping five million ObamaCare enrollees enjoy $20 billion a year in premium subsidies by misrepresenting their incomes, and that half or more of Medicaid’s annual $217 billion budget for long-term care goes to people wealthy enough to cover their bills.

The basic problem is that the federal government is careless with taxpayer money. During the pandemic, criminals may have stolen hundreds of billions of dollars from the Paycheck Protection Program and other giveaways.

Medicare is just as profligate. The government can’t tell which claims are legitimate, so it pays them all and occasionally chases fraudsters after discovering it has been robbed. By failing to audit bills before paying them, the federal government squanders hundreds of billions of dollars every year. As long as it controls how healthcare dollars are spent, fraud will persist and services will cost more than they should.

But there is a straightforward solution. Rather than pay providers, Congress should give Medicare money directly to enrollees, as it does with Social Security. The government should deposit each enrollee’s subsidy into a health savings account, letting seniors decide what they need and how much they are willing to pay. By reducing the government’s role, this reform would eliminate most forms of healthcare fraud, waste, and abuse immediately, saving hundreds of billions of dollars.

The reform would also significantly improve healthcare. When patients pay for it directly—as they do for cosmetic surgery, Lasik, over-the-counter medications, and other elective procedures not covered by insurance—things work well.

Providers post their prices and work hard to keep them low. From 1996 to 2005, the real price of Lasik fell by 30%. The real price of cosmetic surgery also fell, despite innovation and increased demand. There are no prior approval requirements or surprise bills. Fraud is rare, and drugs cost less because no fees are paid to pharmacy benefit managers or insurers.

The alternative is to continue with business as usual. That approach enriches scam artists and unscrupulous providers at the expense of patients and taxpayers.

Mr. Silver is a professor at the University of Texas at Austin School of Law. Mr. Hyman is a professor at Georgetown Law. Both are adjunct scholars at the Cato Institute."