What Government Doesn’t Know About Health Care

In Washington, D.C., two different federal agencies are demonstrating why government bureaucrats are the last people who should ever be put in charge of any aspect of health care.

Writing at RealClearHealth, Grace-Marie Turner describes two big Medicare mistakes—one made by the Department of Health and Human Services (HHS) and the other made by the Government Accountability Office (GAO). Both mistakes have damaged the effective delivery of health care services to Americans receiving Medicare benefits.

This tale started in 2014 when Congress passed the Protecting Access to Medicare Act (PAMA)—directing HHS to establish market-based Medicare payment system for clinical labs that would accurately reflect prices paid in the commercial market.

So far, so good.

To set market rates, HHS needed to collect payment data from a representative sample of labs regarding how much they were being paid for specific tests by private payers. But HHS didn’t do that. Instead, it gathered rate information from fewer than 1% of laboratories nationwide, ignoring data from the other 99%, in turn leading to some deep payment cuts to many independent labs and clinics serving rural communities.

Doug Badger of the Galen Institute analyzed the implementation of the new law in 2018. In implementing the new law, Badger found the HHS bureaucrats constructed a deeply flawed “system that places excessive weight on rates private insurers pay to large, publicly traded chains of clinical laboratories.”

Many of these chains operate laboratories in urban areas with large populations, where a very high volume of testing makes it possible for the chains to offer low prices on lab tests.

In basing Medicare’s reimbursements for medical tests on such a highly skewed sample, the HHS’ bureaucrats put laboratories and clinics who serve smaller communities at a financial disadvantage to their far-off “Big Lab” competitors.

That harms patients in these communities, because Medicare’s reimbursements are no longer covering the true costs of medical tests in them. Unable to cover their costs of operation, many of these labs and clinics are not able to afford the costs of performing tests for Medicare-reimbursed patients in their communities. Instead, these tests need to be sent out to the much larger, bureaucrat-favored competitors in large cities, delaying the timely delivery of results that directly affect their health care. To bureaucrats, that looks like cheaper care, but the reality for patients is rationed and delayed care that diminishes the quality of medical treatment available for the millions who live in these communities.

The other Medicare mistake that Turner identifies was made by the GAO in reviewing the revised Medicare lab test reimbursement system, in which they found that Medicare was likely to be overbilled by billions of dollars. She reviews how they arrived at that conclusion:

GAO decided to concoct a hypothetical payment scenario that made it appear that clinical labs could be overpaid by more than $10 billion from 2018-2020 under the new payment rules. To put that in perspective, CMS pays roughly $7.1 billion annually for lab tests; $10 billion in excess payments over a few years would represent a nearly 50% annual increase in lab payments, something that would be hard to miss.

Here’s how GAO came up with their numbers: Doctors seldom order a single test but most often a panel of related tests. For example, 14 tests measuring blood glucose, potassium, protein levels, and other related indicators are often combined into a single “metabolic” panel. CMS pays the lab $13.04 for the bundle of tests. But if each of these 14 tests instead were billed separately, the bill would be $81.91.

So the GAO decided the labs charge the unbundled rates, despite the fact that American Medical Association guidelines say labs must bill for the panel rather than for the individual tests, and despite the fact that bundled or panel billing is near-uniform practice in the clinical lab industry.

This mistake is a classic example of bureaucrats not having any real-world understanding of the thousands upon thousands of daily interactions and decisions made by millions that occur outside of their central office.

If left unchallenged, the GAO’s report would take the HHS’ original mistake—its failure to determine the true representative cost of lab tests across the full spectrum of providers—and amplify its consequences by driving the HHS to further restrict Medicare reimbursement payments for lab tests. All because the bureaucrats couldn’t be bothered with finding out how regular people engaged with providing and delivering medical services in the real world go about their daily business.

What government doesn’t know about health care can keep you from getting the care you need when you need it.

Craig Eyermann is a Research Fellow at the Independent Institute.
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